by Nick Clark, National Manager General Policy
IMF speaks
The International Monetary Fund this week released a short assessment of the New Zealand economy and economic policies, with a mixture of bouquets and brickbats.
In its ‘Staff Concluding Statement’ the IMF made the following high level observations from its recent mission to New Zealand:
New Zealand’s economy has reached a strong cyclical position, enabled by sound management of the COVID-19 crisis despite intermittent setbacks. The current Omicron outbreak and high and volatile commodity prices in the wake of the war in Ukraine introduce new uncertainty, with adverse near-term impacts on economic activity and consumer price inflation.
The normalisation of macroeconomic policies has started, as fiscal COVID-19 support measures have been scaled down and monetary policy stimulus is being withdrawn to address inflation. Policy tightening should continue, with the pace calibrated to evolving domestic and external economic conditions.
While the housing market has begun to turn, housing affordability remains a concern, requiring continued focus on boosting supply and expanding social housing. Macroprudential measures introduced to address financial stability risks from elevated house prices appear to be working and should be maintained.
Beyond the pandemic, structural policies should aim at improving productivity and promoting inclusive and sustainable growth. Strengthening price-based mechanisms will be important to achieve New Zealand’s greenhouse gas emissions targets.
The IMF has a reputation for promoting sensible economic policy and it’s good to see it wanting a return to responsible fiscal policy and monetary policy normalisation as well as warning against further large increases in the minimum wage.
But not all of what it suggests would go down well from a farming or business perspective. For example, the IMF suggests “transitioning from relatively high corporate income tax to other sources, such as capital gains and possibly land taxes” – both anathema to Federated Farmers.
It supports one of the Government’s most terrible ideas to date, the proposal for an Income Insurance Scheme, which hugely expands the welfare state and increases taxes on wages by 3 percent to fund a seven month holiday on 80% of their former income for people made redundant or with health conditions and disabilities.
It also sees the recent rise in carbon prices to be ‘welcome’ – tell that to rural communities seeing more and more of their land blanketed in permanent pine monocultures. It wants pricing of agricultural emissions without recognising that New Zealand farmers are already the most efficient producers in the world, or the progress being made by the agriculture sector to reduce its emissions, or crucially that no other country in the world is anywhere near introducing emissions pricing for their agricultural emissions.
Its full 2022 Country Report on New Zealand is due to be published in May.
Import surge continues
Exports were up strongly in February but its growth was outpaced by a further big rise in imports, according to Statistics NZ’s monthly Overseas Merchandise Trade Statistics.
Goods exports were worth $5.49 billion in February 2022, $991 million (or 22.0%) higher than in February 2021, driven mainly by higher dairy and meat exports. Results for our main primary sector export commodities:
- Milk powder, butter, and cheese up 36.8% to $1.72 billion.
- Meat and edible offal up 20.9% to $981 million.
- Logs, wood, and wood articles down 3.2% to $392 million.
- Fruit down 16.7% to $48 million.
- Preparations of milk, cereals, flour, and starch down 1.3% to $165 million.
- Wine down 16.6% to $125 million.
- Casein and caseinates up 70.2% to $140 million.
In addition, live animal exports were up 75.3% to $32 million; vegetables down 8.4% to $48 million; eggs, honey, and other edible animal products down 13.7% to $29 million; and wool up 50.9% to $39 million.
Goods exports growth was left in the dust by goods imports, which were up $1.58 billion (or 36.8%) to $5.88 billion in February 2022. With international oil prices up even before the Russian invasion of the Ukraine, petroleum imports were up 105.6% to $474 million, with large increases for all other import commodities. Fertiliser imports were up a whopping 371.5% to $145 million. Cereals imports were also up 227.2% to $86 million.
The net effect was a monthly goods trade deficit of $385 million. Surpluses are typical for February months, with 2021’s being a surplus of $205 million, and 2020’s a surplus of $551 million.
On an annual basis, comparing the year to February 2022 with the year to February 2021, goods exports were worth $64.88 billion, up $5.80 billion (or 9.8%).
- Milk powder, butter, and cheese up 14.0% to $17.60 billion.
- Meat and edible offal up 13.7% to $9.06 billion.
- Logs, wood, and wood articles up 17.4% to $5.42 billion.
- Fruit down 1.4% to $3.90 billion.
- Preparations of milk, cereals, flour, and starch down 15.0% to $2.06 billion.
- Wine down 3.9% to $1.91 billion.
- Casein and caseinates up 35.6% to $1.36 billion.
In addition, live animal exports were up 12.5% to $512 million; vegetables down 3.4% to $485 million; eggs, honey, and other edible animal products down 10.5% to $485 million; and wool up 22.0% to $444 million.
Annual goods imports were up a massive $16.56 billion (or 29.2%) to $73.25 billion, with very large increases for most import commodities. Vehicles, parts, and machinery imports were up 57.3% to $10.43 billion; mechanical machinery and equipment up 29.3% to $10.26 billion; electrical machinery and equipment up 18.9% to $6.42 billion; and petroleum and products up $42.9% to $6.12 billion. In addition, fertiliser imports were up 58.6% to $1.19 billion.
The annual goods trade balance for the year to February 2022 was a hefty deficit of $8.37 billion, an almost $11 billion swing from the previous year’s annual surplus of $2.39 billion. Expect a further deterioration in the March quarter’s balance of payments.
Farm sales drop
The number of farm sales had dropped according to the Real Estate Institute of New Zealand’s monthly Rural Market Statistics.
There were 436 farm sales in the three months to February 2022, down 12.4% on the three months to January 2022 and also down 7.6% on the same three month period last year. However, for the full year to February 2022 farm sales were up 9.2% to 1,760 farms. Dairy farm sales were up 58.4%, finishing farms were up 5.0%, and grazing farms unchanged, but there were fewer sales for dairy support (down 23.6%) and arable (down 3.2%).
The median price per hectare for all farms sold in the three months to February 2022 was $30,130, down 11.4% on the three months to January 2022 but up 17.4% on the same three month period last year. Meanwhile, the REINZ All Farms Price Index, which adjusts for farm size, location, and farming type, was up 0.3% and 23.9% respectively.
Consumer confidence down
The Westpac McDermott Miller Consumer Confidence Index fell 7 points in March to 92.1 on the back of high inflation impacting on households’ financial positions.
A score below 100 indicates that there are more New Zealanders who are pessimistic about the economic environment than there are those who are optimistic. The Index is produced quarterly.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 24 March) show the effect of heavy rain, especially in the North Island, where many areas’ soils are significantly wetter than usual for this time of year. In the South Island, Marlborough and North Canterbury are significantly wetter than usual while Southland remains significantly drier than usual, as has been the case for some weeks.
Exchange Rates
The NZ Dollar was stronger again this week, up 1.7% against the Trade Weighted Index. It was up against all our major trading partners, except the Australian Dollar.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was down 1 point to 1.57% while the 10 year Government Bond yield was up 8 points on 3.26%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 13 April 2022. Another increase is highly likely and it could be a 50 pointer.
| This Week (24/3/22) | Last Week (17/3/22) | Last Month (24/2/22) | Last Year (24/3/21) | |
| OCR | 1.00% | 1.00% | 1.00% | 0.25% |
| 90 Day Bank Bill | 1.57% | 1.58% | 1.24% | 0.34% |
| 10 Year Government Bond | 3.26% | 3.18% | 2.84% | 1.57% |
Source: Reserve Bank of NZ
