NZ economy at a glance - ANZ

Sharon Zöllner, Senior Economist at ANZ, lists down the key economic developments that has taken place as far as New Zealand’s economy is concerned.

Key Quotes

1: Storm in a teacup

The Reserve Bank yesterday cut the OCR 25bps and the NZD promptly rose about a cent as the market was disappointed by the degree of ‘dovishness’. Glenn Stevens of the RBA may have sent a sympathetic email, since the same thing happened to him ten days ago. Fortunately the NZD lift unwound over the next 24 hours.

2: The more things change…

Q2 real retail sales were very strong at +2.3% q/q versus 1.0% expected. This data puts upside risk around our Q2 GDP pick of 0.8% q/q. Until now the story was that consumers have been showing remarkable restraint, not spending up on the back of the paper gains in their house prices. Hmm. This data potentially makes life still harder for the RBNZ. Boomer Q2 GDP would certainly put the cat amongst the pigeons – and potentially the NZD amongst the clouds.

3: Wrong turn?

Meanwhile the July Truckometer, out last week, is a lone voice suggesting that the New Zealand economy may be slowing. It suggests Q2 GDP growth of under 0.5% q/q, and a 5.7% fall in July marks a poor start to Q3. Given the plethora of more optimistic indicators out there we’re assuming it’s noise due to weather or timing effects. But we look forward to the August data with interest.

4: Off the floor

Though there are never any guarantees, dairy futures are boding well for the next few GDT auctions. Seasonality around China’s tariff-free import window is likely a factor, but it is also true that global supply is finally starting to respond to lower prices. For now we maintain our high-$4/kg ms milk price. We would need to see anticipated price gains held onto post October, and the NZD/USD to behave, to change this view. A run of price gains is required to even meet current industry forecasts with the NZD/USD trading above 0.70.

5 & 6: RISK, SHMISK

For a while there earlier this year it looked like a focus on the return of capital might trump the usual fixation on the return on capital. But nope, all kinds of risky assets are back in vogue. Witness for example emerging market currencies…”