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 July, 2008

Date	EST	Indicator	Actual	Forecast	Previous
7/2	11:00pm	Commodity Price Index (ANZ)	0.0%		1.0%
		For June Provided by: ANZ National Bank
7/7	6:00pm	NZIER Business Confidence	-64		-64
		For 2nd Quarter Provided by: New Zealand Institute of Economic Research (NZIER) The latest Business Opinion Survey noted the 0.3% contraction in Q1 quarter GDP, and projected further decline in the June and September quarter, which by definition would be a recession. Firm's expectations of rising costs jumped from a 62% balance in Q1 to 71%, the highest since December of 1986. The persistence of inflation is becoming a driver of inflation itself, as more firms are expecting to increase selling prices in the next three months, based on their expectations of increasing costs. Stagflation is the word used by the report, which is no surprise as input costs continues to rise. The NZD has been weakening, which is a reason manufacturers do have a slightly more optimistic view, but this comes after the sub gauge for general business situation hit the a of 56% negative resonse in Q1. In Q2 54% expected deteoriating business conditions, only a slight improvement.
7/9	8:00pm	Manufacturing PMI	45.7		49.3
		For June Provided by: Business NZ/Bank of New Zealand Official Release: Press Release The New Zealand economy continues to show sign of weakness, with its manufacturing sector coming under serious strain in June. The PMI was the second weakest since the survey started in 2002. From the Release: ""The Bank of New Zealand - Business NZ seasonally adjusted PMI for June (45.7) experienced a significant drop in activity, to record its second lowest result since the survey began in 2002. It was also the lowest June value recorded, with the previous lowest being June 2007 (52.6). Unadjusted results for June showed contraction in activity nation wide. Four of the five main diffusion indices recorded ongoing weakening. Production (42.3) fell to its lowest result, while new orders (44.8) reverted to a value similar to March 2008. Employment (45.6) remains in decline with its second lowest value, while deliveries of raw materials (41.9) experienced the lowest value of any main index for the history of the survey (the previous lowest value for this sub-index being 43.3 in November 2005). Finished stocks (50.6) showed minor expansion."
7/13	6:45pm	Retail Sales m/m	-1.2%	0.1%	1.2% 1.0%
		For May Provided by: Statistics New Zealand Official Release: Media Release Retail sales figures for May were dragged into negative territory by weak motor vehicle sales. The decrease was led by the motor vehicle retailing industry (which has a strong influence on the total sales movement due to its large size and volatility), down 14.8 percent ($102 million). However, core retail sales (which excludes the vehicle-related industries) rose 0.7 percent ($27 million). 14 of the 24 industries reported slower sales. There were increases in grocery stores and automotive fuel retailing, but the report suggests that New Zealand is slowly sliding into recessionary times. The central bank's anticipation of the slowing demand is that it will also curb inflation, which will give policy members room to cut rates from its record-high 8.25%.
7/13	6:45pm	Core Retail Sales	0.7%	0.5%	-0.3% -0.5%
7/14	6:45pm	Consumer Price Index q/q	1.6%	1.4%	0.7%
		For 2nd Quarter Provided by: Statistics New Zealand CPI y/y: 4.0% forecast 3.8%, pr. 3.4% (1Q '08), 3.2% (4Q '07) Inflation in the June quarter accelerated to the fastest pace since the June quarter in 1990. Higher petro prices led to higher transport prices, which pulled the quarterly inflation rate above expectations, and more than double the March quarter reading of 0.7%. Inflation is accelerating, while the slowdown is spreading and deepening. Like its neighboring central bank the RBA, the RBNZ may be willing to compromise some initial slowdown if that can lead to a drawdown on inflationary pressure. So far, the data has been diverging from that scenario.
7/14	6:45pm	Food Price Index m/m	1.3%	0.3%	1.0%
		For June Provided by: Statistics New Zealand FPI y/y: pr. 6.8%
7/23	5:00pm	RBNZ Interest Rate Statement	8.00%	8.25%	8.25%
		Provided by: Reserve Bank of New Zealand Official Release: Statement The Reserve Bank of New Zealand surprised economists and traders and lowered rates by a quarter point, causing a quick knee-jerk reaction of Kiwi selling. The NZD/USD fell almost 80 pips in the minutes following the release, testing 0.7415. The NZD/JPY plunged 100 pips to set a low near 80.00 in the minutes following the release. From the Release: "The Reserve Bank today reduced the Official Cash Rate (OCR) from 8.25 percent to 8.0 percent. Reserve Bank Governor Alan Bollard commented that “more unpleasant international news has emerged since the June Monetary Policy Statement, and there is a risk that the domestic economy will slow further. Moreover, the cost of funds raised abroad by banks has been rising in recent months as the international financial situation has deteriorated. Today’s cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and households. “Recent oil and food price increases mean that annual CPI inflation should peak around 5 percent in the September quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed. “Economic activity is likely to remain weak over the remainder of 2008. The ongoing correction in the housing market, together with the very high oil prices, will limit household spending and constrain the extent of recovery. However, high export prices and an expansionary fiscal policy are expected to contribute to a gradual pickup in activity through 2009. “Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. In this regard, it is important to note that monetary policy has been reasonably tight for some time, and is now restraining activity and medium-term inflation pressures. Provided that the outlook for inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further.”
7/27	6:45pm	Trade Balance	-0.22B	-0.50B	-0.20B
		For June Provided by: Statistics New Zealand Official Release: Media Release Official Release: PDF Exports: 3.59B, forecast 3.35B, pr. 3.73B (May), 3.80B (Apr), 3.44B (Mar) Imports: 3.81B, forecast 3.70B, pr. 3.92B (May), 4.13B (Apr), 3.49B (Mar) The trade balance figure for New Zealand showed a slight change in June from May. Exports were down compared to May, but imports decreased as well, keeping the trade balance similar to May's levels. Expectations were for a bigger deficit. From the Release: "In the month of June 2008, merchandise imports were valued at $3.8 billion, the highest value for a June month, up 16.9 percent from June 2007. This increase was led by crude oil with the price of crude up substantially since June 2007. Merchandise exports were valued at $3.6 billion in June 2008, up 30.9 percent from June 2007. This is the largest percentage increase from the same month of the previous year since January 2001. The increase in exports was dominated by crude oil and milk powder, butter and cheese."
7/28	6:45pm	Building Approvals	-20.1%		-40.8% -42.3%
		For June Provided by: Statistics New Zealand Official Release: PDF
7/30	11:00pm	Business Confidence	-43.2		-38.7
		For June Provided by: National Bank of New Zealand Official Release: Press Release From the Release: "The economy needs oxygen. Business confidence has retreated. A net 43 percent expect worse times over the year ahead, down from a net 38 percent last month. It is the trend in how firms feel about their own business that is most disconcerting. Firms’ own activity expectations have sunk deeper into the red. A net 8 percent expect conditions for their own business to worsen over the coming year. Not since 1988, and the start of the survey, have we seen five successive months where firms’ own activity expectations have been negative. While the rural heartland and confidence towards agriculture remain positive, it’s a sea of red ink across retailing, manufacturing, construction and services."

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Central Bank Watch - Latest RBNZ Decision

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October
22nd, 2008

Actual

Forecast

Revised Form

6.50%

7.50%

N/A

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

From the Release: "Reserve Bank Governor Alan Bollard commented that “ongoing financial market turmoil and a deteriorating outlook for global growth have played a large role in shaping today’s decision.

“Economic activity in New Zealand will be further constrained, relative to the outlook presented in our September Monetary Policy Statement, by these international developments. New Zealand can expect to face lower demand for exports and credit is likely to be less readily available. In this environment consumers and businesses are likely to be more cautious and curtail spending.

“The reduction in domestic spending will be partly offset by the depreciation of the New Zealand dollar over the past few months, falling oil prices and the recent loosening of fiscal policy."

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