by Nick Clark, National Manager General Policy
GDP falls
The economic roller coaster has continued its rocky ride, with Gross Domestic Product falling 0.2% in the March 2022 quarter.
Quarterly GDP has swung violently over the past two years with big increases and decreases commonplace. The March quarter decline at least in part reflected the Omicron outbreak although weakening economic sentiment will have played a part thanks to high inflation and the Reserve Bank’s necessary response to it. Businesses and consumer confidence both tanked in the quarter and they remain rock bottom.
Although the quarter-on-quarter result was negative, the annual measures were better. Comparing the March 2022 quarter with the March 2021 quarter GDP was up 1.2%. And GDP was up 5.1% for the year to March 2022 compared to the year to March 2021.
Agriculture’s GDP was up 0.9% for the quarter, thanks to higher activity for dairy cattle farming and sheep, beef cattle, and grain farming. However, other parts of the primary sector (including mining, forestry, fishing, and support services) suffered falls and they dragged the overall result for the primary sector down 1.2% for the quarter.
There’s certainly a lot of noise in the data and many economic forecasters got it wrong. This includes the Reserve Bank which had forecast as recently as May a 0.7% quarterly increase. That’s way off the mark. Most punters are still expecting a bounce back in the current June quarter although the margin for error must surely be high, especially with the economic headwinds having intensified and unlikely to abate any time soon.
The US Federal Reserve this week hiked its policy rate by 75 basis points and market pricing here has suggested the Reserve Bank could up the ante and do likewise at its next review on 13 July.
Softer than expected GDP has made a 75 point move less likely and it could even make the Reserve Bank re-look at its May forecasts which were for some aggressive 50 point increases. Inflation is still the greater evil though and much will depend on how inflation tracks over the coming months. The June quarter Consumer Price Index is not released until 18 July, which is after the Reserve Bank’s next OCR review on 13 July.
Meanwhile the Government needs to ensure all its policies promote competitiveness and productivity and foster a better business environment. Rather than just blame external forces it should reconsider policies that are not aligned with those goals.
Food prices continue to rise
Statistics NZ’s monthly Food Price Index has shown a pick-up in annual food price inflation.
Comparing May 2022 with April 2022, the Index rose 0.7% (and up 0.8% after seasonal adjustment).
- Fruit and vegetable prices were up 0.5%, with fruit down 3.4% but vegetables up 2.9%.
- Meat, poultry, and fish prices were down 0.5%, with beef & veal down 0.5% but mutton, lamb & hogget up 2.8%.
- Grocery food items were up 1.1%, with bread & cereals down 0.3% but milk, cheese & eggs up 2.9%.
On an annual basis, comparing May 2022 with May 2021, the Index was up 6.8%.
- Fruit and vegetable prices were up 10.0%, with fruit up 9.1% and vegetables up 10.6%.
- Meat, poultry, and fish prices were up 7.0%, with beef & veal up 9.6% and mutton, lamb & hogget up 12.4%.
- Grocery food items were up 7.4%, with bread & cereals up 5.0% and milk, cheese & eggs up 11.5%.
The 6.8% annual rate of food price inflation was a slight increase on the 6.4% annual increase for the year to April but was lower than the 7.6% increase for the year to March.
External deficit widens
An overheating economy sucking in imports and a continued absence of international visitors has contributed to a blow-out in the current account deficit, according to Statistics NZ’s quarterly Balance Payments and International Investment Position.
In the March 2022 quarter, the seasonally-adjusted current account deficit was $8.5 billion, $1.9 billion wider than in the previous quarter. The goods trade deficit was $701 million bigger, due to goods imports growing much faster than goods exports. The services trade deficit also surged by $1.1 billion, with exports down and imports up. Services exports continued to be hampered by a lack of international tourists and students although reopening the borders will help from here.
The annual current account deficit for the year ended March 2022 blew out to $23.3 billion (6.5% of GDP). This compares to the previous year’s deficit of $8.2 billion deficit (2.5% of GDP). In nominal dollar terms it is by far the biggest annual deficit in New Zealand’s history, although as a percent of GDP the deficit is still below 7.8% deficits recorded in March 2006 and December 2008.
New Zealand’s net international liability position narrowed to $160.2 billion, from $162.4 billion previous quarter. International assets were down $4.8 billion and international liabilities were down $7.0 billion. At 45% of GDP, it is much lower than it was in 2009 – 84%.
Auckland drives house prices fall
The median house sales price dropped 4.0% in May compared to April, according to the Real Estate Institute of NZ’s monthly Residential Property Statistics. This took the annual increase down to just 2.4%, a far cry from six months ago when the annual increase was 23.8%.
The national median house price in May 2022 was $840,000, down from $875,000 in April and well back from its $925,000 peak in November 2021.
Auckland’s median house price was $1,125,000, down 3.9% for the month and down 2.2% for the year – the only region to post an annual decline. It was also sharply down from November’s peak of $1,300,000.
10 out of 16 regions had month-on-month falls but 15 of them still had annual increases. The biggest annual increases were in West Coast (up 30.8%), Taranaki (up 18.9%), Canterbury (up 18.1%), Southland (up 12.3%), and Bay of Plenty (up 10.7%).
Sales volumes continued to be down sharply on the same time last year. 5,556 houses were sold in May 2022, down 28.4% on May 2021. The median days to sell also climbed from 30 in May 2021 to 43 in May 2022.
REINZ said “tighter credit conditions, higher mortgage rates and increased housing supply” as factors behind a much more challenging market.
Taking flight
Relaxed border and traffic restrictions resulted in a jump in border crossings in April, according to Statistics NZ’s International Travel and Migration Statistics.
The 266,700 border crossings in April 2022 (125,100 arrivals and 141,600 departures) was the highest monthly number since March 2020. Most arrivals and departures were from and to Australia and most travellers were New Zealand residents.
Meanwhile, there was a small provisional net migration loss of 100 in the month of April (4,600 migrant arrivals and 4,700 migrant departures). On an annual basis, for the year ended April 2022, the net migration loss was 8,700 (46,500 arrivals and 55,200 departures). As has been the case since the pandemic the loss was due to net loss of non-New Zealand citizens (8,900) well in excess of a small net gain of New Zealand citizens (200).
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 16 June) show the effects of recent wet weather. Most of the country’s soils are normal or wetter than usual for this time of year, especially Marlborough, North Canterbury, and the South Island High Country. In contrast Matamata-Piako, coastal Canterbury south of the Waimakariri, and coastal Otago remain significantly drier than usual.
Exchange Rates
The NZ Dollar was a down for the week, declining 1.4% against the Trade Weighted Index. It was down against all our major trading partners except the Euro and the Pound.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up 24 points to 2.76% while the 10 year Government Bond yield was up 29 points to 4.16%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 13 July.
| This Week (16/6/22) | Last Week (9/6/22) | Last Month (16/5/22) | Last Year (16/6/21) | |
| OCR | 2.00% | 2.00% | 1.50% | 0.25% |
| 90 Day Bank Bill | 2.76% | 2.52% | 2.13% | 0.32% |
| 10 Year Government Bond | 4.16% | 3.87% | 3.61% | 1.65% |
Source: Reserve Bank of NZ