Export forecasts revised up
The Ministry for Primary Industries’ Situation and Outlook for Primary Industries’ December 2022 Update has increased its forecasts for primary sector exports for the 2022/23 year.
MPI is forecasting primary sector exports of $55.0 billion for the year to June 2023, $3 billion higher than what had been forecast in the June 2022 report. $2 billion of that upward revision was thanks to dairy, while meat and wool exports are also forecast to be around $500 million higher than earlier forecast.
Comparing the forecast for the year to June 2023 with the actual data for the year to June 2022, total primary sector exports are expected to be up $1.9 billion (or 3.6%), with:
- Dairy $23.31 billion, up $1.31 billion (or 6.0%)
- Meat and wool: $12.38 billion, up $70 million (or 0.6%)
- Horticulture: $7.09 billion, up $308 million (or 4.5%)
- Forestry: $6.59 billion, up $12 million (or 0.2%)
- Seafood: $1.99 billion, up $80 million (or 3.7%)
- Arable: $265 million, up $13 million (or 5.2%)
- Processed food and other products: $3.33 billion, up $104 million (or 3.2%).
For the following year to June 2024, exports are expected to fall back a little, but forecasts that far out are often wildly out thanks to the vagaries of international markets and commodity prices, exchange rates, and the weather’s impact on production.
MPI noted that the primary sector accounts for over 81% of merchandise exports, nearly 11% of New Zealand’s GDP, and 13% of employment. We’re still a crucial economic powerhouse despite the many challenges out there.
Ag debt slips
Agricultural debt edged down in October, according to the Reserve Bank’s monthly Sector Lending Statistics.
In October 2022, agricultural sector lending was $62.0 billion, down $36 million on September and down $157 million (0.3%) from October 2021. This masked differences within the sector:
- Dairy cattle farming: $36.4 billion, down $33 million for the month and down $1.2 billion (or 3.3%) for the year.
- Sheep, beef cattle, and grains farming: $15.3 billion, down $55 million for the month but up $81 million (or 0.5%) for the year.
- Horticulture: $7.2 billion, up $62 million for the month and up $993 million (or 16.0%) for the year.
- Other agriculture on farm: $2.3 billion, down $26 million for the month and down $56 million (or 2.4%) for the year.
In contrast to agriculture’s annual decline of 0.3%, annual growth in housing lending was 5.2%, continuing its recent trend of slowing annual growth, while personal consumer debt was up 1.2%. Business lending was up 8.2%..
Inflation fright
Business confidence slumped in November, with firms worried about inflation and the Reserve Bank’s aggressive response.
ANZ’s monthly Business Outlook Survey showed a net 57.1% of businesses expect general economic conditions to worsen over the coming year, a 14.4 point drop from October’s -42.7. Agriculture respondents’ opinion was unanimously awful with 100% (i.e., everyone) expecting conditions to worsen, unheard of in the years I’ve been following this survey. This was a 28.6 point worsening. All sectors had dismal net scores, but agriculture’s was by far and away the worse.
For own activity, it was a little less dire with a net 13.7% expecting their activity to reduce. This was down 11.2 points from October’s -2.5%. Although manufacturing had a positive net score, construction and retail were particularly bad (-44.4% and -37.5% respectively). Agriculture’s net score of -6.2% was a little less pessimistic than the average but it was down 27.6 points.
Cost expectations remain acute with a net 88.7% expecting their costs to rise (and all 100% of agriculture respondents) but relatively fewer expect to hike their prices – a net 58.5%, down 6 points. Agriculture’s score was negative indicating they expect to receive lower prices. Profit expectations deteriorated too.
Concerningly, forward looking inflation expectations edged up from 6.13% to 6.39% overall, with agriculture’s up from 6.64% to 7.05%. Not surprisingly considering tighter monetary policy ease of credit expectations worsened.
Overall, a dreadful survey.
Spending, deficit, and debt higher
The Government’s Interim Financial Statements for the four months to 31 October 2022 show a fiscal deficit close to what was expected in Budget 2022 but debt significantly higher than expected.
Core Crown tax revenue was $36.2 billion, $62 million less than expected. Income tax was higher than forecast thanks to the strong labour market but this was more than offset by lower than forecast revenue from GST and other indirect taxes. Meanwhile core Crown revenue was $40.0 billion, $319 million more than expected, mainly due to higher ETS revenue and higher interest income.
Core Crown expenses were $41.8 billion, $515 million more than expected, mainly due to higher finance costs and health-related expenses. The net result was an operating deficit (before gains and losses) of $2.8 billion, $274 million more than expected.
Net debt was $70.1 billion, $3.5 billion more than expected, mainly due to higher borrowings and market movements impacting on financial instruments. It was similar picture for gross debt of $129.2 billion, $8.2 billion more than expected due to derivative liabilities being greater than forecast, borrowings by the Reserve Bank, and other borrowings by the Treasury. Total borrowings of $217.5 billion was also $5.6 billion more than expected.
With debt larger and interest rates increasing higher finance costs will take up more of government spending. This should constrain the ambitions of politicians.
We will know if that is the case in a couple weeks when the Government produces its Half Year Economic & Fiscal Update and Budget Policy Statement.
Jobs growth stalls, decline for primary industries
Job numbers were essentially unchanged in October, according to Statistics NZ’s Monthly Employment Indicators.
Across all industries there were a seasonally adjusted 2.32 million filled jobs in October, down by 500 compared to September. Seasonally adjusted filled jobs in the primary industries were down 1,800 (or 1.7%) for the month, falling to 105,200.
On an annual basis, total filled jobs of 2.32 million was up 44,800 (or 2.0%) compared to October 2021. Actual (i.e., unadjusted) filled jobs for the primary industries were down over the same period by 4,900 (or 4.5%), falling to 102,900.
Building consents fall
October saw a sharp drop residential building consents, according to Statistics NZ’s Building Consents Issued.
Comparing October 2022 with September 2022, residential building consents were down a seasonally adjusted 10.7%. The $1.47 billion value of consents was also down 5.5% from October 2021.
Despite the month-on-month fall, the 50,252 new homes consented for the year to October 2022 was still up 5.1% from the year ended October 2021. These consents were valued at $20.4 billion, up 13.0%.
Meanwhile, non-residential building consents worth $825 million were issued in October 2022, down 3.1% compared to October 2021. Of this $30 million was for farm buildings, up 10.9%.
For the full year to October 2022, non-residential consents were worth $9.4 billion, up 0.2% on the previous year. Farm buildings were worth $325 million for the year, up 9.8%.
Consumers more negative
Consumer confidence fell in November, with the ANZ-Roy Morgan Consumer Confidence Index falling 4.7 points to 80.7. A score below 100 means more pessimists than optimists.
Almost all of the indicators comprising the Index slipped compared to October. The key indicator for retail sentiment, the proportion of people who believe it is a good time to buy a major household item, fell 9 points to a net 31% saying it is a bad time.
Forward looking inflation expectations lifted to 5.3%, up from 5.0% last month, while house prices are expected to be unchanged.
Retail sales rise
Despite negative consumer sentiment, retail spending rose in the September quarter, although it was dampened once the price effects of inflation was factored in.
Statistics NZ’s Retail Trade Survey has shown that for the September 2022 quarter compared with the June 2022 quarter, the total value of seasonally adjusted retail sales was $29.9 billion, up 2.5%. However, much of that increase was inflation-related with the total volume of seasonally adjusted sales up by only 0.4%.
By industry, the largest quarterly movements in sales volumes were for:
- Electrical and electronic goods retailing – down 14.5%
- Department stores – up 17.9%
- Clothing, footwear, and personal accessories – up 5.1%
- Fuel retailing – up 3.2%
- Pharmaceutical and other store-based retailing – up 2.8%
On an annual basis, comparing September 2022 with September 2021, actual sales volumes were up 4.9%, with a hefty 29.8% increase for food and beverage services (e.g., cafes, restaurants, bars, and takeaways). The return of international tourists will have boosted retail sales but also important to recognise was that the September 2021 quarter was impacted by a national lockdown for part of the quarter, as well as extended restrictions in Auckland and Northland.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 1 December) show soil conditions across almost all of the North Island being significantly wetter than usual for this time of year, especially in Northland, Auckland, Bay of Plenty, and around Whanganui. The South Island is a little less sodden. Coastal Wairarapa, Dunedin, and Stewart Island are the only areas with soils drier than usual, but only a little drier..
Exchange Rates.
The NZ Dollar was up again this week, rising 0.5% against the Trade Weighted Index. It was up against all our key trading partners, except the Japanese Yen. After falling steadily for most of the year the NZ Dollar has been rising since the start of October, up 9.1% since then. It is now only just below where it was at the same time last year.
Source: Reserve Bank of NZ
Wholesale Interest Rates.
Over the course of the week, the yield for the 90 Day Bank Bill was up 2 points to 4.41% but the 10 year Government Bond yield dropped 20 points to 4.00%.
There will now be a three month wait until the Reserve Bank next reviews monetary policy settings (including the OCR) on 22 February 2023.
| This Week (1/12/22) | Last Week (24/11/22) | Last Month (1/11/22) | Last Year (1/12/21) | |
| OCR | 4.25% | 4.25% | 3.50% | 0.75% |
| 90 Day Bank Bill | 4.41% | 4.39% | 4.14% | 0.86% |
| 10 Year Government Bond | 4.00% | 4.20% | 4.26% | 2.45% |
Source: Reserve Bank of NZ
