by Nick Clark, National Manager General Policy
GDP rebounds
Economic activity continued its volatility over the past two years, with December 2021 quarter’s Gross Domestic Product up 3.0% on the September 2021 quarter. That quarter had seen a 3.6% decline so most of that drop was recovered.
Comparing the December 2021 quarter with the December 2020 quarter, GDP was up 3.1%. However, when comparing the whole of the year ended December 2021 with the whole of the year ended December 2020, GDP was up a more robust 5.6%.
Most industries had growth in the December quarter, with the biggest quarter-on-quarter increases for mining (up 9.5%), construction (up 8.7%), professional, scientific, technical, administration, and support services (up 7.8%), retail trade and accommodation (up 6.7%), and manufacturing (up 6.5%).
It was not all positive with a few industries declining. This includes the agriculture, forestry, and fishing industry where GDP was down 3.6%. This was mainly due to agriculture, which was down 3.8%, driven by falls for beef farming and dairy farming.
On an annual basis, agriculture, forestry, and fishing’s GDP was down 2.0% comparing December 2021 quarter with December 2020 quarter but it was up 3.9% when comparing the year to December 2021 with the year to December 2020.
3.0% quarter-on-quarter growth beat the Reserve Bank’s forecast of 2.3%, although not those of other commentators, some of which forecast stronger growth between 3.0% and 3.5%. However, while positive December’s story is old news with the current March quarter nearly over.
The skies have darkened with global economic turmoil from the Russia-Ukraine war and associated sanctions. And at home the New Zealand economy has been overheating and headwinds have further intensified, including from the Omicron outbreak, adverse weather events, acute inflation pressures, rising interest rates, a cooling housing market, and poor business and consumer confidence.
Hence the importance of reopening to the world and the Government’s action this week to bring it forward.
Dairy prices drop
After four big increases over the past two months, each greater than 4%, the Global Dairy Trade fell at this week’s auction.
Overall, the GDT Price Index was down 0.9%. This was mainly due to a 2.1% decline for whole milk powder, by far the biggest commodity by volume traded. Other commodities on offer had mixed fortunes. There were rises for skim milk powder (up 1.6%), anhydrous milk fat (up 0.4%), and cheddar (up 0.3). On the other hand, as well as whole milk powder there were falls for butter (down 1.8%) and lactose (down 0.6%).
The average selling price was $US5,039 and 23,348 tonnes were sold.
Despite this week’s fall, the GDT Price Index is still up 18.5% since the start of 2022 and it is also 21.9% higher than at the same time last year. It is also still above its previous peak in April 2013.
Food prices accelerate
Statistics NZ’s monthly Food Price Index has shown a further acceleration in annual food price inflation.
On a month-on-month basis, comparing February 2022 with January 2022, food prices slipped by 0.1%. Food prices usually drop in February and when seasonally-adjusted they were up 0.4%.
- Fruit and vegetable prices were down 0.7% (but up 0.6% after seasonal adjustment), with fruit up 1.4% and vegetables down 2.1%.
- Meat, poultry, and fish prices were up 0.1%, with beef & veal up 1.8% and mutton, lamb & hogget down 0.1%.
- Grocery food items were down 0.2% (down 0.1% after seasonal adjustment), with bread & cereals down 0.6% and milk, cheese & eggs up 1.3%.
Annually, comparing February 2022 with the same month last year, food prices were up 6.8%. This was an acceleration from January’s annual increase of 5.9%.
- Fruit and vegetable prices were up 17.3%, with fruit up 10.6% and vegetables up 22.5%.
- Meat, poultry, and fish prices were up 7.1%, with beef & veal up 8.4% and mutton, lamb & hogget up 11.4%.
- Grocery food items were up 5.4%, with bread & cereals up 4.6% and milk, cheese & eggs up 8.9%.
Looking ahead there is unlikely to be much respite for consumers. February’s adverse weather will have impacted on supply of many crops, and turmoil in global commodity markets from the Ukraine war will apply further upward pressure on food supplies and prices, both directly and indirectly.
Deficit blowing out
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 December 2021 quarter the seasonally-adjusted current account deficit was $6.5 billion, $1.8 billion wider than in the previous quarter. The goods trade deficit widened by $417 million while the services trade deficit widened by $1.1 billion. In both cases it was because imports grew much stronger than exports. Services exports continue to be hampered by the lack of international tourists and students.
The annual current account deficit for the year ended December 2021 blew out to $20.2 billion, or 5.8% of GDP. This compares to the previous year’s deficit of $2.7 billion deficit or 0.8% of GDP. It is the biggest deficit since 2009.
Large external deficits are seen as a sign of a country ‘living beyond its means’ but deficits are not necessarily ‘bad’ in themselves. New Zealand has run current account deficits since the mid-1970s and at times these have been large – most recently in the late 2000s, when it peaked at 7.8% of GDP. The key is market confidence, which has improved dramatically since the 1980s. However, such a big blow-out in the space of a year could put pressure on this confidence.
New Zealand’s net international liability position narrowed to $161.3 billion, from $164.2 billion previous quarter, mainly due to asset valuation gains in the December quarter. At around 46% of GDP, it is much lower than it was in 2009 – 84%. Weaker equity markets in the current March quarter may weigh on this indicator, however.
Positive signs for manufacturing but difficult times for services
The BNZ-Business NZ’s monthly Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI) paint a mixed picture for manufacturing and services.
February’s PMI was 53.6, up 1.3 points from January. A PMI above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. The New Orders sub-index (58.2) increased to its highest level since July 2021, while Production (52.1) experienced a slight improvement but remained subdued. Employment (51.7) rose back into expansion territory but Finished Stocks (50.0) fell. Comments from manufacturers were mostly negative.
The PSI was also up 2.6 points, to 48.6. Although up on January’s score, the PSI is still showing contraction and it has been below the 50 mark for seven months in a row. Business NZ observed that Orders/Business (53.6) and Activity/Sales (50.7) returned to positive territory but Employment (45.0) dropped to its lowest result since May 2020 and Supplier Deliveries (34.4) was at its lowest point since August 2021. BNZ said that pain is accumulating.
Cooling fast
The housing market continued its correction in February, according to the Real Estate Institute of NZ’s monthly Residential Property Data.
The median sales price in February 2022 was $885,000, up 0.6% on January 2022 and up 13.5% on February 2021. While these seem healthy, last month’s annual increase was 20.5% and the REINZ House Price Index dropped 0.8% for the month – its third consecutive drop. House prices appear past their peak and on their way down. By the end of the year house prices could be as much as 10% lower.
Auckland’s median sales price $1.19 million, down 0.8% on January’s, dragging its annual increase down to 8.2%. The regions with the biggest annual increase were Canterbury (up 28.6%), Taranaki (up 27.9%), Southland (up 24.6%), and Gisborne (up 20.2%).
After a very sluggish January sales volumes bounced back in February – as they always do – but they were still down 32.8% from February last year (from 8,324 to 5,597). REINZ noted that after a shortage of inventory last year there has been an influx of stock which is easing demand side pressure and should further ease price growth over the coming months.
Another indicator of a change in fortune is that it also took a lot longer in February to sell a house – a median 42 days, up 11 days on the same month last year.
Migration loss continues and few visitors
Statistics NZ’s International Migration Statistics showed another net migration loss in the month of January 2022, albeit on thin numbers (only 2,100 arrivals and 2,600 departures).
For the year ended January 2022 there was a net migration loss of 7,500 people. There were 45,800 migrant arrivals and 53,300 migrant departures. As with previous months the loss was mainly due to non-New Zealand citizens where there was a net loss of 10,100, more than offsetting a net gain in New Zealand citizens of 2,600.
Meanwhile its International Travel Statistics showed only 4,000 overseas visitor arrivals in the month of January 2022, 1,400 fewer than January 2021’s 5,400. Pre-pandemic there were 411,000 visitors in January 2020.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 17 March) show soils in much of the top half of the North Island significantly drier than usual for this time of year, Northland through to Waikato especially dry with and with other very dry pockets elsewhere. Southland also remains significantly drier than usual. In contrast Wellington region, Marlborough Sounds, and North Canterbury soils remain wetter than usual.
Exchange Rates
The NZ Dollar was a little stronger again this week, up 0.5% against the Trade Weighted Index. It was up against all our major trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up 13 points to 1.58% while the 10 year Government Bond yield was up 26 points on 3.18% – its highest rate in almost five years.
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 (17/3/22) | Last Week (10/3/22) | Last Month (17/2/22) | Last Year (17/3/21) | |
| OCR | 1.00% | 1.00% | 0.75% | 0.25% |
| 90 Day Bank Bill | 1.58% | 1.45% | 1.23% | 0.33% |
| 10 Year Government Bond | 3.18% | 2.92% | 2.84% | 1.73% |
Source: Reserve Bank of NZ