New Zealand Country Profile - Economy, Currency, Central Bank, New Zealand Dollar, NZD

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Introduction

New Zealand is the 60th largest economy in the world with a GDP of $92.51 billion, and a population of 4.2 million. Its economy depends on international trade, mainly with Australia, the United States and Japan. This leaves it vulnerable to growth conditions in the these economies. It's main exports include meat, dairy products, wood and forest products, fish, and wool. These exports and tourism, along with a declining manufacturing sector, do not match the imports of advanced manufactured goods required to sustain the New Zealand economy. Therefore, New Zealands has a large current account defecit.

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New Zealand's Fundamental Indicators and Chart

Monthly Data for June, 2008

Date	EST	Indicator	Actual	Forecast	Previous
6/1	5:00pm	Holiday: Queen Victoria Day
6/3	11:00pm	Commodity Price Index (ANZ)	1.0%		-0.3%
		For May Provided by: ANZ National Bank New Zealand commodity prices rose to 1% following a 0.3% drop in April. This amounted to a 18.7% increase compared to May of last year. Price increases were led by gains in apples and beef, while dairy prices were lower. the increase in prices to these commodities will help the New Zealand's trade balance and will help support GDP growth. Recently increases to dairy prices have been a major driver of economic growth; they are 16% higher on the year. However, the last two months showed prices declining. In NZ dollar-adjusted terms, the index rose 2.5% as the currency fell against most of its major trading partners.
6/4	5:00pm	RBNZ Interest Rate Statement	8.25%	8.25%	8.25%
		Provided by: Reserve Bank of New Zealand The Reserve Bank of New Zealand held rates at 8.25% as anticipated, but also sounded more dovish. CPI Inflation is still lingering, and is expected to peak at 4.7% annually in the September quarter. The expectation is for inflation to calm down in the medium term. However, the language was stronger in regards to weakening growth. Bollard explained in today's press release: "The outlook for economic activity is now weaker than in our previous Statement. We project little GDP growth over 2008, and only a modest recovery thereafter, largely reflecting a weaker household sector. Government spending and personal tax cuts will provide some offset to this lower growth but will also add to medium-term inflation pressure. Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. Provided the economy evolves in line with our projection, we are now likely to be in a position to lower the OCR later this year, which is sooner than previously envisaged." The market equated the statement to a high probability of a rate cut later this year as inflation calms. The NZD/USD immediately fell about 100 pips in the hour following the statement. Inflation has been keeping the bank from lowering rates. As the focus now is shifting away from that, a rate cut is now back on the table.
6/10	6:45pm	Merchandise Terms of Trade q/q	4.1%	1.0%	2.9%
6/11	6:31pm	Manufacturing PMI	49.3		51.5 51.4
		For May Provided by: Business NZ/Bank of New Zealand Official Release: Press Release The manufacturing index dropped to 49.3 in May from 51.5 in April as slowing global economic growth reduced export orders. The Kiwi was lower vs the US Dollar following the release. From the Release: "New Zealand’s manufacturing sector continued to weaken in May amidst challenging economic conditions, according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI). The seasonally adjusted PMI for May stood at 49.3, which is 2.2 points down from April, although still higher than the March result. The slight contraction recorded in May takes the average PMI value for 2008 to date to 50.9. The May result is well below the average PMI value of 54.3 since the survey began in 2002. Business NZ chief executive Phil O’Reilly says the reversal to a sub-50 result for May indicates the tough times manufacturers are facing at the moment. “There are still groups of manufacturers who are experiencing positive outcomes from the current economic situation, acquiring new customers (here and offshore) and businesses. However, three-quarters of manufacturers are working through issues involving a global slowdown, a high New Zealand dollar and a flat domestic market. Although this offers little comfort, the global PMI shows that New Zealand manufacturers are not alone in dealing with these difficult times.”
6/11	6:45pm	Food Price Index m/m	1.0%		0.3%
		For May Provided by: Statistics New Zealand FPI y/y: 6.8% Food prices rose another 1% in May, driving the Food Price Index (FPI) up 6.8% in the year to May. Thats the largest rise since October 2001, when prices were up 7.7%. Fruits and vegetables led the gains, up 3.8%, non-alcoholic beverages were next (2.6%) and grocery foods (up 0.5%). On the year, grocery prices are up 11.8%, with milk (21.5%) cheddar cheese (59.4%), bread (13.9%) and butter (80.1%) leading the charge. The Food Price Index makes up about 1/5th or 20% of the Consumer Price Index, which is expected to climb to as high as 4.7% this year. Higher inflation during a time when manufacturing and other sectors are cooling in the New Zealand economy will pose a headache for the Reserve Bank of New Zealand.
6/12	6:45pm	Retail Sales m/m	1.0%	0.4%	-1.2%
		For April Provided by: Statistics New Zealand April's Release: Media Release Retail Sales Ex Autos m/m:-0.5% forecast 0.2%, pr -0.5% Overall retail sales grew faster than expected in April according to Statistics New Zealand. The 3-month trend has cooled off from consistently growing 0.5% since June 1998, to 0.1% between February 2008 and April 2008. Also stripping away the automotive sector, sales were down -0.5% for a second straight month. From the release: Seasonally adjusted total retail sales rose 1.0 percent ($52 million) in April 2008, Statistics New Zealand said today. This followed a 1.2 percent fall in March 2008. Core retail sales (which excludes the vehiclerelated industries) fell 0.5 percent ($19 million). The RBNZ has already been considering a rate cut this year from its record high 8.25% OCR. The past two retail sales releases have shown that the economy is starting to cool off.
6/12	6:45pm	Core Retail Sales	-0.5%	0.2%	-0.5%
		See Retail Sales
6/15	6:45pm	Manufacturing Sales q/q	3.7%		8.3%
		For Q1 Provided by: the Statistics New Zealand Official Release (pdf) New Zealand Q1 manufacturing sales figures came in 3.7% higher, the third largest rise since the series began. This came after the record December quarter increase of 8.3%. Much like the previous quarter, meat and dairy product manufacturing skewed the numbers. It grew 13.0%. Stripping this industry out, sales edged down 0.1%. From the release: The total manufacturing sales trend continues to record general increases, however it has been stronger in the past year, up 12.8 percent, due to the influence of the meat and dairy product manufacturing industry.
6/25	6:45pm	Current Account	-2.2B	-1.7B	-3.4B
		For 1st Quarter Provided by: Statistics New Zealand From the Release: "The current account deficit for the year ended March 2008 was $13,787 million (7.8 percent of GDP), compared with $13,837 million for the year ended December 2007 (7.9 percent of GDP). New Zealand's seasonally adjusted current account deficit for the March 2008 quarter was $3,527 million, $410 million larger than the December 2007 quarter. There was a net inflow of capital into New Zealand of $2.0 billion in the March 2008 quarter. New Zealand's net international liabilities were $153.2 billion at 31 March 2008, an increase of 1.2 percent from the December 2007 quarter."
6/26	6:45pm	Gross Domestic Product q/q	-0.3%	-0.3%	0.8% 1.0%
		For 1st Quarter Provided by: Statistics New Zealand GDP y/y: 1.9%, forecast 2.1%, pr. 3.5% (rev from 3.7% - 4Q) 3.3% (3Q) First quarter GDP contracted with a drag from agriculture and constructions sectors. Consumption and demand faltered mainly for durable goods such as motor vehicles, furnitures, and major appliances. Non-durable goods expenditure was flat. The poor figures on economic growth serve as a reminder to the RBNZ that there is no more room to hike rates even though inflation is elevated. Highlights from the release: "Activity in primary industries decreased 4.1 percent, and goods producing industries declined 1.9 percent in the March 2008 quarter. Gross fixed capital formation was down 2.0 percent in the March 2008 quarter. Household consumption expenditure dropped 0.4 percent, following an increase of 0.5 percent last quarter. Real gross national disposable income increased 5.3 percent in the year ended March 2008."
6/26	6:45pm	Trade Balance	-0.19B	0.15B	-0.33B
		For May Provided by: Statistics New Zealand Official Release: Media Release Official Release: PDF Exports: 3.73B, forecast 3.70B, pr. 3.80B (Apr), 3.44B (Mar) Imports: 3.92B, forecast 3.95B, pr. 4.13B (Apr), 3.49B (Mar) Both exports and imports rose for the ninth straight month. Exports surged 11.2% ($376million) to $3.7billion, the highest for a May month. Crude oil exports increased $142million. while meat and edible offal exports increased $117million. Imports increased an even greater amount, up 17.3%($580million) to $3.9billion. StatNZ also noted that over the past 10 years, May months have recorded a deficit only 3 times, all occurring in the past 4 years.
6/29	6:45pm	Building Approvals	-42.3%		82.1%
		For May Provided by: Statistics New Zealand Official Release: Highlights Official Release: PDF From the Release: "Highlights or May 2008 compared with May 2007: • Consents for new dwellings excluding apartments fell by 664 units, to 1,548. • Consents for new apartments fell by five units, to 105. • Residential building consent values fell $181 million, to $553 million. • Non-residential building consent values fell $36 million, to $356 million. The trend for the number of new dwellings excluding apartments has been declining since June 2007."
6/29	11:00pm	Business Confidence	-38.7%		-49.7
		For May Provided by: National Bank of New Zealand Official Release: Press Release From the Release: "Another month has come and gone. The June reading of the National Bank Business Outlook eerily resembles that of May. Business confidence has once again nudged higher. A net 39 percent expect worse times over the year ahead, up from a net 50 percent last month. But when we look at the detail, the move appears to lack conviction, and pricing intentions continue to rise. The underlying economy remains very weak. Own activity expectations, which provide a better indication of overall economic growth, remain unchanged from last month with a net 4 percent expecting tougher times. This is the fourth successive month firms’ own activity expectations have been negative. Not since 1988 have we seen firms’ own activity expectations remain so consistently weak. We’ve said it before and we’ll say it again. When this indicator is negative, the economy is moving backwards. Employment intentions continue to ebb lower. A net 12 percent expect labour market conditions to worsen. Investment intentions slipped another notch in the month, with a net 3 percent expecting a decline. Collectively, our composite growth indicator from the survey remains in negative territory. Taking on a more positive tone, we are in no doubt that the seeds of an upswing and the all important realignment in the composition to growth are very slowly being sown. The NZ dollar is starting to correct, although more slowly versus the all important US dollar. If the greenback is going down, we struggle to do the same. The Reserve Bank has moved to an easing bias and rate cuts look to be just around the corner. Fiscal policy is delivering impetus via tax cuts late in the year. But given the combination of global unease, surging oil prices, leverage, and pressure on household budgets from burgeoning food related inflation; the adjustment we are embarking on, and one which we have talked about for some time, will be elongated in nature as the piper is paid."

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September
10th, 2008

Actual

Forecast

Revised Form

7.50%

7.75%

8.00%

N/A

Provided by: Reserve Bank of New Zealand
Official Release: Statement

The Reserve Bank of New Zealand reduced its official cash rate (OCR) by 50 basis points from 8.0 percent to 7.5 percent. That surprised the markets and means policy makers are very concerned about the slowdown in the economy. The NZD/USD and NZD/JPY fell more than 100 pips in the aftermath of the release. With the economy "experiencing a marked slowdown", Governor Bollard believes will "translate into lower inflation pressures."

From the Release: Reserve Bank Governor Alan Bollard said: “The New Zealand economy is experiencing a marked slowdown, led primarily by the household sector. The outlook for the global economy has deteriorated further in the wake of continued financial market turmoil. In addition, the New Zealand business sector is coming under pressure from both rising costs and falling demand. While domestic activity is likely to pick up late this year as a result of personal tax cuts, increased government spending and rising rural incomes, we expect a prolonged period of household sector adjustment and below-average growth.
“The weakness in economic activity is expected to translate into lower inflation pressures in the medium term. Headline inflation is expected to peak around 5 percent in the current September quarter before trending down thereafter... With medium-term inflation pressures expected to ease, it is appropriate to move towards a less restrictive monetary policy stance."

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