With the Level 4 lockdown into its second week the economy will be taking a hit each day it continues. Vehicle traffic has taken a dive and consumer spending has slumped – except at the supermarkets. Essential businesses and services, including farming and food production, have been able to continue but under restrictions which will be impacting on productivity.
Employment has been protected – at least in the short-term – by the revived Wage Subsidy Scheme and affected businesses can also get Resurgence Support Payments. This support is necessary when so much of the economy is in hibernation but it will be costly: as at 24 August $484 million had been paid in wage subsidies to nearly 128,000 businesses.
The cost of the Government’s support measures will be a blow to the progress made over the past year to repair its finances which have seen both the operating deficit and net core Crown debt coming in much lower than expected.
The lockdown also stopped the Reserve Bank from lifting the OCR last week. Again, the stop was necessary but it is a delay to normalisation of monetary policy which is needed to rein in the runaway housing market and to contain inflationary pressures.
The experience of last year’s Level 4 lockdown provides some encouragement. While the hit to economic activity was severe, employment and incomes were preserved and there was a strong and rapid surge in activity once restrictions were relaxed. If this happens again the fiscal cost will be contained and monetary policy normalisation will be able to recommence.
Today we’ll find out what will happen with the alert levels, which will be key to determining whether the economic impact will be a blip or something more profound. Auckland will certainly be in Level 4 for longer but it’s less clear what will happen for the rest of the country. The South Island seems likeliest to get a reduction in alert level but other parts of the North Island could also be deescalated.
Stay safe and let’s all hope we’re able to get out of this soon.
Bigger farms, more trees.
Statistics NZ released data this week on Māori businesses, with the results illustrating their importance to the primary industries and the export economy.
With a total land area of 480,500 hectares Māori farms make up 3.6% of all New Zealand’s farmland. On average, Māori farms have five times more land than the average New Zealand farm and have three times as much livestock. In 2020, the average Māori farm was 1,409 hectares, whereas the average farm was 271 hectares.
26.2% of Māori land operated by Māori farms in 2020 was forest plantation, while for all farms it was 12.3%. The area of forest plantation on Māori farms increased from 66,000 hectares in 2006 to 110,000 hectares in 2016 and increased further to 126,000 hectares in 2020.
Grassland made up 42.9% of land on Māori farms, compared with 55.3% for all farms. Māori farms had a higher proportion of bush and scrub, at 19.6% compared with 8.3% for all farms while they had a lower proportion of ‘other land’ (including tussock, conservation, arable, etc.), at 10.6% compared with 23.1% for all farms.
Māori farms had 819,900 sheep, 135,800 beef cattle, 84,200 dairy cattle, and 2,900 deer.
The goods exports of Māori authorities amounted to $755 million in 2020, up 1.9% on 2019. $311 million was for seafood and $153 million for dairy products.
Māori businesses include Māori authorities (those having a Māori business flag on the Business Register) and Māori owned small to medium sized enterprises (where the business owner defines it as a Māori business).
Imports leap in July.
July 2021 saw large increases in both vehicle and petroleum imports, resulting in a significant increase in the total value of imports, according to Statistics NZ’s monthly Overseas Merchandise Trade statistics.
Goods imports were worth $6.16 billion in July 2021, up 34.7% compared to July 2020. There was strong growth for the major import commodities, but especially petroleum (up 233.2%) and vehicles, parts, and accessories (up 152.2%). However, it should be noted that July 2020 was a weak month for many imports due to COVID-19.
Meanwhile, goods exports were worth $5.75 billion in July 2021, up 15.2% on July 2020. Movements in key export commodities follow:
- Milk powder, butter, and cheese up 27.4% to $1.42 billion.
- Meat and edible offal up 27.4% to $759 million.
- Logs, wood, and wood articles up 39.8% to $597 million.
- Fruit down 0.8% to $481 million.
- Preparations of milk, cereals, flour, and starch (largely infant formula) down 14.9% to $163 million.
- Wine up 13.9% to $185 million.
In addition, exports of eggs, honey, and other edible animal products were up 7.4% to $51 million; live animals down 60.4% to $25 million; and wool up 57.4% to $33 million.
The net result was a monthly goods trade deficit of $402 million. This was turnaround from a $425 million surplus for July 2020, but smaller than July 2019’s deficit of $732 million.
For the year ended July 2021, goods exports were worth $61.16 billion, up 1.4% compared to the year ended July 2020. Looking at the key export commodities:
- Milk powder, butter, and cheese down 2.5% to $16.03 billion.
- Meat and edible offal down 2.2% to $8.16 billion.
- Logs, wood, and wood articles up 26.6% to $5.52 billion.
- Fruit up 4.1% to $3.89 billion.
- Preparations of milk, cereals, flour, and starch down 10.6% to $2.18 billion.
- Wine down 2.7% to $1.89 billion.
In addition, exports of eggs, honey, and other edible animal products were up 9.7% to $521 million; live animals up 33.2% to $491 million; but wool was down 3.9% to $410 million.
Goods imports for the year ended July 2021 were worth $62.26 billion, up 3.3% compared to the year ended July 2020. Imports of vehicles, parts, and accessories were up 28.0% while petroleum products were down 17.6%.
On an annual basis, the net result was a goods trade deficit of $1.10 billion. This was a widening from a $252 million deficit for the year ended June 2021, and a contrast to the $26 million surplus for the year ended July 2020.
Retail sales strong.
Retail sales were strong in the June quarter, according to Statistics NZ’s Retail Trade Survey.
Comparing the June 2021 quarter with the March 2021 quarter the total value of retail sales rose 4.0% to $28.11 billion. With price effects stripped away the volume of retail sales was up 3.3% – still a strong rate of quarterly growth.
All 16 regions had higher sales values, with particularly strong growth in West Coast (up 25.1%) and Otago (up 13.8%) – two regions that had previously had declining sales.
11 out of 15 industries posted increases. The largest movements were for accommodation (up 11.4%), pharmaceutical and other store-based retailing (up 7.5%), electrical and electronic goods retailing (up 6.9%), and food and beverages services (up 5.6%).
Comparing the June 2021 quarter with the same quarter last year, actual retail sales were up 33.1%. This was off a low base with the June 2020 quarter heavily impacted by the Covid-19 Level 4 lockdown.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 26 August) show a similar picture to recent weeks with the moisture of most of the country’s soils being about normal for this time of year. The exceptions continue to be in the Hawkes Bay, where soils are drier than usual and parts of Marlborough, Canterbury and Otago where soils are wetter than usual.
Exchange Rates
After swooning last week, the NZ Dollar this week recovered some of its lost ground, rising 1.2%. It was up against all our key trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
This week the yield for the 90 Day Bank Bill was up 2 points to 0.45%, but a long way off its pre-lockdown 0.67%. Meanwhile the 10 year Government Bond yield was unchanged at 1.68%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 6 October.
| This Week (26/8/21) | Last Week (19/8/21) | Last Month (26/7/21) | Last Year (26/8/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.45% | 0.43% | 0.45% | 0.28% |
| 10 Year Government Bond | 1.68% | 1.68% | 1.50% | 0.55% |
Source: Reserve Bank of NZ