by Nick Clark, National Manager General Policy
GDP surprises on the upside
New Zealand’s economy grew by 1.7% in the June 2022 quarter compared to the March 2022 quarter, according to Statistics NZ’s quarterly Gross Domestic Product.
This was much stronger than most economists’ expectations, although very close to the Reserve Bank’s pick of 1.8%. Quarterly GDP has swung violently over the past two and a half years with large swings between increases and decreases, with the previous March 2022 quarter declining by 0.2%.
Although the quarter-on-quarter result was positive, annual measures weakened. Comparing the June 2022 quarter with the June 2021 quarter GDP was up only 0.4%. And GDP was up only 1.0% for the full year to June 2022 compared to the year to June 2021. That is tepid.
Agriculture, forestry, and fishing’s GDP was up 1.1% for the quarter, which doesn’t seem at all bad. However, its June 2022 quarter’s GDP was down 5.7% compared to the June 2021 quarter’s and its GDP for the full year to June 2022 was 3.2% lower than the year to June 2021’s.
Goods producing industries were also weaker, down 3.8% for the quarter. The closure of Marsden Point oil refinery was a major downward drag for manufacturing, which fell 5.9% for the quarter (Marsden Point is now an import terminal so it’s reclassified as warehousing, a service industry). In contrast, services were strong, up 2.7% for the quarter. The reopening of the border will have helped boost activity in transport, hospitality and accommodation, and culture and recreation.
There is certainly a lot of noise in the data and many economic forecasters got it wrong, including me – I admit to expecting an increase closer to zero. The Reserve Bank got it right though, which means it shouldn’t change its view of the economy. 50 point OCR increases in October and November remain highly likely.
Realising this the markets didn’t move much in response to the data.
Food prices accelerate
The annual rate of food price inflation accelerated to 8.3% for the year to August 2022, according to Statistics NZ’s monthly Food Price Index.
Comparing August 2022 with July 2022, the Index rose 1.1% (and up 0.9% after seasonal adjustment).
- Fruit and vegetable prices were up 4.1%, with fruit up 0.3% and vegetables up 6.1%.
- Meat, poultry, and fish prices were up 1.2%, with beef & veal up 1.2% and mutton, lamb & hogget up 2.1%.
- Grocery food items were up 1.0%, with bread & cereals up 1.6% and milk, cheese & eggs up 1.8%.
On an annual basis, comparing July 2022 with July 2021, the Index was up 8.3%.
- Fruit and vegetable prices were up 14.5%, with fruit up 14.3% and vegetables up 14.6%.
- Meat, poultry, and fish prices were up 7.6%, with beef & veal up 6.6% but mutton, lamb & hogget down 1.0%.
- Grocery food items were up 8.7%, with bread & cereals up 7.4% and milk, cheese & eggs up 10.0%.
This is the highest annual increase in food prices since July 2009.
Annual deficit increases
New Zealand’s annual current account deficit has grown to a near record high, according to Statistics NZ’s Balance of Payments and International Investment Position.
The seasonally adjusted current account deficit was $7.1 billion in the June 2022 quarter, down from an $8.8 billion deficit in the March 2022 quarter. The narrowing was mainly due to a $2.8 billion rise in exports of goods and services exceeding a $785 million rise in imports of goods and services.
Exports of both goods and services were up for the quarter. Meat and fruit made the largest contribution to the increase in goods exports. Travel drove the growth in services exports thanks to eased border restrictions allowing the return of visitors.
Despite a narrower quarterly deficit, the annual deficit for the year to June 2022 increased further to $27.8 billion. This was up from a $24.3 billion deficit for the year to March 2022 and an $11.5 billion deficit for the year to June 2021. The annual deficit of 7.7% of GDP was only just below December 2008’s 7.8% of GDP which was the highest since at least 1988.
New Zealand’s net international liability position also widened. On 30 June 2022 it was $179.3 billion (49.9% of GDP), up $17.7 billion from its level on 31 March 2022 ($161.6 billion) and up $22.2 billion from the same time last year ($157.1 billion).
The current account deficit will likely exceed 8% by the end of the year. While being a net importer of capital is not a problem if it is used for productive purposes, it is questionable that this is the case. Instead, the high deficit reflects an overheating and unproductive economy. And while low global interest rates have kept financing costs much lower than in the past they are now on the rise.
Card transactions lift
Retail spending, as measured by Statistics NZ’s monthly Electronic Card Transactions, rose in August.
Seasonally adjusted card spending increased 0.7% in August compared to July. This was despite a 2.8% decline for fuel, on the back of lower petrol and diesel prices. There were also declines for durables and apparel but other categories increased
Looking at annual comparisons, comparing August 2022 to August 2021, total card spending was up 32.5% to $8.5 billion. This very large increase was distorted by the Delta lockdown in August 2021. Consumables (e.g., grocery) spending was down but all other categories posted big increases.
Traffic bounces
Traffic volumes grew strongly in August but remain volatile according to ANZ’s monthly Truckometer.
The light traffic index, which measures cars, motorcycles, utes, and vans, was up 5.4% from July to August. It was also up 14.1% annually as measured by a three month rolling average. The Delta lockdown in August 2021 and ongoing restrictions in the months thereafter have played havoc with light traffic data, making it harder to make sense of the noise even twelve months later.
The heavy traffic index, which measures truck traffic, and which has been a good indicator for GDP, was up 7.0% for the month and up 6.0% for the year. ANZ considers the heavy traffic bounce to be encouraging but like light traffic it has been very volatile lately, reflecting the availability of truck drivers. Labour, or lack of it, is a key constraint for the trucking industry.
House prices continue to fall
House sales volumes recovered a little in August but median sales prices continued to move downwards, according to the Real Estate Institute of NZ’s Residential Market Statistics.
The median house sales price in August 2022 was $800,000, down 1.2% compared to July and down 5.9% compared to August 2021. The median sales price was also 13.5% below its peak of $925,000 in November 2021.
Auckland’s median sales price was $1,100,000, down 8.3% compared to August 2021, and three other regions also had annual declines and one was unchanged (Waikato). Wellington’s median sales price was down 9.3%, Manawatu-Whanganui’s down 6.6%, and Northland’s down 1.2%. In contrast, four regions still had double digit annual increases – West Coast up 25.0%, Marlborough up 14.5%, Gisborne up 13.2%, and Taranaki up 12.7%.
The total number of properties available for sale more than doubled from 12,249 in August 2021 to 25,441 in August 2022. But despite the large increase in available properties, sales volumes continued to be weak. The 4,891 houses sold in August was up 1.9% compared to July but still down 18.3% compared to August 2021.
Meanwhile, the median days to sell a house climbed further to 49, 18 days more than in July 2021. This is another indicator of weak demand.
Another migration loss but visitors growing
Statistics NZ’s International Migration Statistics have shown a net migration loss of 400 in July 2022, smaller than the 1,000 loss in July 2021. Migrant arrivals were up 39.0% to 7,900 and migrant departures were up 24.6% to 8,200.
On an annual basis, for the year to July 2022, there were 52,100 migrant arrivals (down 15.7%) and 64,500 migrant departures (down 7.1%). This resulted in an annual net loss of 12,400, higher than the previous year’s net loss of 7,600.
Meanwhile, the easing of border restrictions has seen a revival in visitor numbers. There were 134,200 overseas visitor arrivals in July 2022, up from only 30,200 in July 2021. For the full year to July 2022 there were 413,900 arrivals, almost double the 213,100 for the year to July 2021. Most of the growth was from Australia with the United States and United Kingdom well behind.
New Zealanders are rediscovering international travel, with 165,000 New Zealand-resident arrivals in July 2022 (up from 36,500 in July 2021) and 502,000 for the full year to July 2022 (up from 129,000 for the year to July 2021). Australia continues to be the most popular destination.
Despite the recovery in visitor numbers, they remain a long way below pre-pandemic levels. Overseas visitor arrivals were 255,600 in July 2019 and 3.9 million for the year to July 2019, while New Zealand-resident arrivals were 340,300 and 3.1 million respectively.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 15 September) show soil conditions across most of the North Island about average for this time of year, except for coastal Gisborne and the Hawkes Bay itself which are both wetter than usual. Despite this coastal southern Hawkes Bay is drier than usual. In the South Island, eastern Marlborough, Kaikoura, coastal South Canterbury, and Central Otago remain wetter than usual.
Exchange Rates.
Overall, the NZ Dollar was weaker this week, down 0.6% against the Trade Weighted Index. It was also down against all our key trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates.
Over the course of the week, the yield for the 90 Day Bank Bill was up 9 points at 3.62% while the 10 year Government Bond yield was up 4 points to 4.05%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 5 October. Expect it to be hiked to 3.50%.
| This Week (15/9/22) | Last Week (8/9/22) | Last Month (15/8/22) | Last Year (15/9/21) | |
| OCR | 3.00% | 3.00% | 2.50% | 0.25% |
| 90 Day Bank Bill | 3.62% | 3.53% | 3.31% | 0.54% |
| 10 Year Government Bond | 4.05% | 4.01% | 3.51% | 1.80% |
Source: Reserve Bank of NZ
