This is my final economic commentary for 2022, a year which has been challenging – to put it mildly.
We have grappled with the ongoing effects of Covid-19 at home and abroad, supply chain snarl ups, war in Ukraine, financial market turmoil, economic slowdown, government policies, high inflation, and the fight against it. Farmer, business, and consumer confidence have all been severely knocked. The news from this week’s commentary is no exception to this theme, unfortunately.
Have a great Christmas with loved ones, have a summer break from the grind, and keep away from the bad news. 2023 and its challenges will be upon us soon enough.
Interest pinch weighs heavily on farmer stress
Farmers are being squeezed by rising interest rates, with debt and other financial concerns eroding mental wellbeing, according to Federated Farmers’ November 2022 Banking Survey.
Unsurprisingly, considering large hikes to the Official Cash Rate this year, the average mortgage interest rate increased to 6.29% from 4.59% in May 2022. The average overdraft interest rate also increased to 8.59% from 7.10% in May.
The comments from respondents show understandable disquiet about rapid increases in interest rates. This was tempered by a sense of inevitability considering the Reserve Bank’s tighter monetary policy with many blaming the Government for this situation (i.e., too much monetary and fiscal stimulus stoking inflation and forcing the action). However, in addition to this there was resentment about increasing margins on top of higher base rates and that is something that is in the banks’ control.
Farmer satisfaction with their bank relationship continues to slip. Although just on 60% of farmers said they were very satisfied or satisfied with their bank relationship, this was down 5 points from the survey six months earlier and is the lowest since the survey began in 2015.
Overall, banks’ conditions for lending became tougher rather than easier for all farm types, with 3% reporting easier conditions and 27% reporting tougher conditions.
Satisfaction with communication from banks slipped again, down 3 points to 54% saying communication had been good or very good. Comments from respondents suggest that personal contact from bank staff has been declining over recent years and most farmers are unhappy about it.
17% of farmers perceived they had come under undue pressure over the past six months, up 3.5 points from May 2022. Concerningly, 40% of farmers said they felt their mental wellbeing had been affected by their debt levels, interest rates, changing condition, or other forms of financial pressure.
1,169 farmers responded to this survey, and we are very grateful for their feedback. The next Banking Survey will be undertaken in May 2023.
Dairy prices end year down
This week’s Global Dairy Trade fell 3.8%, so ending 2022 on a low note.
All the commodities on offer fell in price, with whole milk powder down 4.0%, skim milk powder down 4.8%, anhydrous milk fat down 2.2%, butter down 2.6%, and cheddar down 0.7%.
Overall, the average selling price was $US3,493 and 28,724 tonnes were sold.
After peaking on 1 March, the GDT Price Index has since lost a third of its level and it is now 20.5% lower than at the same time last year.
Spring sales lift
In a rare bright bit of economic news the Real Estate Institute of NZ’s Rural Market Statistics show a strong lift in farm sales volumes and prices in November.
Overall, there were 244 farm sales in the three months ended November 2022, up 33.3% from the three months ended October 2022. However, sales are still 37.3% lower than the same three-month period last year.
There were 1,536 farms sold in the full year to November 2022, down 16.7% compared to the year to November 2021. Dairy farm sales were down 8.3%, Dairy Support down 13.1%, Grazing farms down 17.6%, Finishing farms down 12.4%, and Arable farms down 3.8%.
The median price per hectare for all farms sold in the three months to November 2022 was $32,410, up 23.7% on the three months ended October 2022, but down 12.7% compared to the same three-month period last year. The REINZ All Farm Price Index, which adjusts for differences in farm size, location, and farming type, was up 9.3% in the three months to November 2022 compared to the three months to October 2022 and it was up 2.8% compared to the same three-month period last year.
REINZ identified inflationary pressures, increasing interest rates, ongoing labour shortages, and simmering resentment from central government policies as factors influencing the current market.
Import surge continues
November saw another solid increase in exports, again driven by dairy products, but their growth continued to be dwarfed by yet another petroleum fuelled surge in imports, according to Statistics NZ’s monthly Overseas Merchandise Trade Statistics.
Goods imports were $8.5 billion in November 2022, up 26.3% compared to November 2021, continuing their run of strong growth. Most import categories had big increases, with petroleum and products posting a 117% increase to $1.0 billion. Fertiliser imports also had a large 64.5% increase to $110 million.
Goods exports were worth $6.7 billion in November 2022, up 17.7% compared to November 2021. Dairy led the way. Milk powder, butter, and cheese exports were up 19.3% to $2.3 billion; preparations of milk, cereals, flour, and starch up 53% to $218 million; and caseins and caseinates up 92% to $212 million. Exports of meat and edible offal were up a modest 2.3% to $668 million, while logs and wood articles were up 15.2% and fruit up 3.0%.
The goods trade balance in November 2022 was a deficit of $1.9 billion, a worsening of the $1.1 billion deficit for November 2021.
On an annual basis, for the year to November 2022, goods exports were $71.9 billion, up 14.2% on the previous year. For the key primary sector export commodities:
- Milk powder, butter, and cheese: up 22.1% to $20.4 billion.
- Meat and edible offal: up 15.9% to $9.9 billion.
- Logs, wood, and wood articles: down 5.9% to $5.2 billion.
- Fruit: down 3.3% to $3.8 billion.
- Preparations of milk, cereals, flour, and starch: up 19.3% to $2.4 billion.
- Wine: up 9.8% to $2.2 billion.
- Casein and caseinates: up 49.4% to $1.8 billion.
In addition, live animal exports were up 17.4% to $546 million. However, eggs, honey, and other animal products were down 11.0% to $450 million; vegetables down 3.6% to $464 million; and wool down 3.0% to $417 million
Annual growth in goods imports was again huge, up 25.7% to $86.6 billion. Petroleum and products imports had an 80% increase to $9.9 billion. Fertiliser imports were up 48% to $1.4 billion and other chemical products a 120% increase to $1.7 billion.
The annual goods trade balance for the year to November 2022 was a huge deficit of $14.6 billion, nearly $9 billion higher than the previous year’s deficit of $5.9 billion.
A slowing economy ought to take the heat out of import growth in 2023.
Manufacturing and services activity easing
The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI) both eased for the month.
The seasonally adjusted PMI for November was 47.4, down 1.7 points from October. A PMI above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is contracting.
This is the first time the PMI has had consecutive months of contraction since the first nationwide lockdown in 2020. Four of the six sub-indexes were below 50.0. Only one of the sub-indexes was up from the month before – finished stocks. Manufacturers noted a general slowdown of conditions, both domestic and overseas, as well as persistent labour shortages, particularly for skilled staff.
Meanwhile, the PSI for November was 53.7, down 3.4 points from October, to be about the long-term average of 53.6. All six sub-indexes lost ground for the month, with one of them (Supplier Deliveries) slipping below 50. Nevertheless, the PSI remains in expansion mode indicating the state of services being better than that of manufacturing.
Business confidence ends the year on a downer
2022 has ended with a wheeze for business confidence according to ANZ’s monthly Business Outlook Survey.
Business confidence plummeted to a new record low in December, sliding 13.1 points to a net 70.2% expecting general economic conditions to worsen over the coming year. For agricultural respondents all 100% expect conditions to worsen, the same as for November.
Turning to own activity, the more reliable indicator for economic growth, a net 25.6% expect their activity will reduce over the coming year, a worsening of 11.9 points. Despite being universally negative about the wider economy, agricultural respondents were the least pessimistic about their activity with ‘only’ a net 11.8% expecting it to reduce, a worsening of ‘only’ 5.6 points.
Overall, across all respondents, cost expectations remain acute with a net 84.4% expecting them to increase, although this was down 4.3 points, while pricing expectations were stable on a net 59.1% expecting to raise their prices. Investment intentions, employment intentions, profit expectations, and ease of credit expectations all worsened compared to November.
Inflation expectations for the year ahead eased a little, from 6.39% to 6.23%, but they remain elevated. Agriculture’s expectation was the highest at 6.91%.
Federated Farmers next six-monthly Farm Confidence Survey will be undertaken in January.
As does consumer confidence
It’s not just businesses that feeling gloomy, consumers are too as shown by two consumer confidence surveys out this week.
The Westpac McDermott Miller Consumer Confidence Index fell sharply in the December quarter, dropping 12 points to 75.6. A score of 100 means optimists and pessimists evenly matched so this quarter’s score indicates deep gloom. Indeed, it’s the lowest level consumer confidence has been since the survey began in 1988.
Westpac cited increasing borrowing costs and high inflation eating at households’ spending power and it also noted that many respondents expect bad economic times ahead.
Meanwhile, the monthly ANZ Roy Morgan Consumer Confidence Index also plunged to a new record low, dropping 7 points to just 73.8 (again 100 is where optimists and pessimists are evenly balanced). The detail was grim with drops for perceptions of current and future financial situations, whether it’s a good or bad time to buy a major household item, and perceptions about the economic outlook. House prices are expected to fall over the coming year and inflation expectations barely budged.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 22 December) show soil conditions significantly wetter than usual across almost all of the North Island as well as much of Canterbury. There are only a handful of isolated patches of drier than usual conditions, all of them in the South Island.
Exchange Rates.
The NZ Dollar lost ground this week, down 2.1% against the Trade Weighted Index. It was down against all our major trading partners except the UK 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 6 points to 4.59% and the 10-year Government Bond yield was up 14 points to 4.34%.
The Reserve Bank next reviews monetary policy settings (including the OCR) on 22 February 2023.
| This Week (22/12/22) | Last Week (15/12/22) | Last Month (22/11/22) | Last Year (22/12/21) | |
| OCR | 4.25% | 4.25% | 3.50% | 0.75% |
| 90 Day Bank Bill | 4.59% | 4.53% | 4.31% | 0.95% |
| 10 Year Government Bond | 4.34% | 4.20% | 4.24% | 2.31% |
Source: Reserve Bank of NZ
