Monthly Economic Indicators July 2013
Published 5 Aug 2013
Note: Text of the July MEI was finalised on 2 August 2013
• Moderate GDP growth expected in the June quarter, with downside risks from drought
• Business optimism signals a pick-up in activity in the second half of the year
• Inflationary pressures set to increase
• Global markets stabilise
Activity indicators are signalling only moderate GDP growth in the June quarter and it may be even weaker depending on
the impact of the drought. This will likely be reflected in the negative contribution from net trade to GDP growth,
although a partial offset is expected from stronger consumer spending.
Surveys showed that business confidence remains elevated and hiring and investment intentions were positive, providing a
solid base for growth in the second half of 2013. Optimism is centred on the construction sector where the pipeline of
residential building work is rising in response to regional housing pressures. There were also signs that the recovery
will become more broad-based as the expected growth in building activity benefits local manufacturers and the
agricultural sector bounces back from the drought. Likewise, elevated consumer confidence will support activity in the
service and retail sectors.
Annual CPI inflation was subdued in the June quarter and has now been below the RBNZ’s target band of 1-3% for four
consecutive quarters, depressed by falling tradables prices. Beyond the June quarter, inflation is expected to pick up
as the impact of the high NZD fades and non-tradables inflation begins to accelerate as the Canterbury rebuild gathers
pace and competes for resources elsewhere in the economy. This is consistent with the marked increase in surveyed
pricing intentions as capacity pressures firmed. The RBNZ acknowledged that GDP growth and inflation are likely to pick
up, confirming that monetary stimulus will likely need to be removed in the future.
Global developments in July reinforced the rebalancing of global growth towards the developed economies while more
dovish comments from the US Federal Reserve regarding the tapering of quantitative easing brought more stability to
markets. The US economy continued to recover as June quarter GDP was stronger than expected. On the other hand, GDP
growth slowed in China, although markets were relieved that the slowdown was not sharper.
One of this month’s special topics examines the impact of a “hard landing” in China on the New Zealand economy. The
slowing of growth in China reinforced the softer Australian outlook as the non-mining economy continues to be
constrained by soft domestic demand. The softer outlook in Australia has been one factor behind fewer New Zealand
residents departing to Australia which is covered in more depth in the other special topic this month on recent trends
in external migration.
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