Weekly economic update

Weekly Economic Update - 1 May 2020

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New Zealand moved to Alert Level 3 on 27 April, allowing many businesses to reopen. High-frequency indicators show a tick up in economic activity, though it remains well below normal levels. Data from March show exports held up strongly despite the effects of the COVID-19 pandemic. The finalised ANZ Business Outlook Survey for April showed business confidence improved slightly from the preliminary read released on 8 April, but remains firmly negative.

Worldwide growth in COVID-19 cases is slowing and more countries are easing restrictions on economic activity. Activity data continue to worsen, however. April G-4 flash PMIs have fallen sharply, with the services sector hit especially hard. In the United States and South Korea, March quarter GDP growth was at its weakest since 2008.

Daily COVID-19 cases remain low…#

The daily number of new COVID-19 cases in New Zealand has remained low this week, with just three on 30 April (Figure 1). Recoveries continue to outpace new infections, with 84% of cases now recovered. Nearly 135,000 people have been tested for the virus, or 2.7% of the total population.

Figure 1: Daily COVID-19 cases in New Zealand

COVID-19 cases and recoveries in NZ

Source: Ministry of Health

…as New Zealand transitions to Alert Level 3#

Businesses across the country reopened on Tuesday as lockdown restrictions eased, with some creatively adapting their business models to comply with ongoing health and safety measures. Businesses unable to comply with the measures and we expect activity to be around 25% below normal levels until restrictions are eased further. Alert level 3 currently remains in place for two weeks and will be reviewed by Cabinet before 11 May.

While activity is picking up…#

Figure 2: Electricity grid demand

Electricity grid demand

Source: Electricty Authority

Traffic in New Zealand’s main centres picked up substantially on 28 and 29 April, according to data from the NZ Transport Agency (Page 2). Comparing Tuesday and Wednesday with the week before, both light and heavy traffic increased by over 100%. Overall traffic volumes remained below half of their 2019 levels, however.

…the near-term outlook remains pessimistic#

Three of New Zealand’s major banks downgraded their economic forecasts on Tuesday. The consensus has grown more pessimistic, with most forecasters now expecting a contraction of close to 20% in the June quarter, and unemployment nearing 10% by the end of the year.

On 24 April the number of Jobseeker Support beneficiaries reached 180,000, around 6.0% of the estimated working-age population. Total wage subsidy payments reached $10.5 billion, benefitting 1.7 million people.

High-Frequency Indicators (under development)#

Traffic Movement

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Border Crossings

Boarder Crossings

Source: Customs NZ

Job Seeker Support

Job Seeker Support

Source: MSD

Freight Movement

Freight Movement

Source: Waka Kotahi NZ Transport Agency

Retail Spending

Retail Spending

Source: Stats NZ

Fiscal Support: Wage Subsidy (paid)

Fiscal Support: Wage Subsidy (paid)

Source: MSD

Export growth remained strong in March…#

New Zealand’s merchandise exports increased strongly in March, despite the global and domestic effects of the COVID-19 pandemic.

Seasonally adjusted exports rose 4.5% to $5.3 billion in March, driven by higher fruit and meat values. Dairy export volumes decreased by 6.3%, but the value decline was only 3.9% due to higher prices. Meat export volumes rose by 13.9% while values rose by 10.8%. Fruit exports rose by 55.2% in value terms and 14.3% in volume terms, driven mostly by higher exports of gold kiwifruit.

Dry weather has seen a reduction in dairy production volumes as well as higher slaughter numbers in recent months. NIWA soil moisture deficit indicators show that drought conditions throughout much of New Zealand has increased significantly compared to the same time last year (Figure 3).

Figure 3: Soil moisture deficit

Figure 3: Soil moisture deficit

Source: NIWA

Forestry exports to China continued to fall in March due to the COVID-19 restrictions and associated fall in demand, but exports of other goods have held up reasonably well. New Zealand exporters have also been able to re-direct some of their products to other markets.

Seasonally adjusted imports rose by 11.6%, led by an increase in the volume of petroleum product imports. Consequently, the seasonally adjusted trade balance fell from a $177m surplus in February to a $161m deficit in March (Figure 4).

For the March quarter, seasonally adjusted export values were 1.4% higher than the previous quarter, while import values were 3.1% lower. In comparison, we had expected export values to be roughly flat, and imports to decline by 6.2%. The trade balance is therefore weaker in the March quarter than we had forecast.

Figure 4: Overseas merchandise trade

Figure 4: Overseas merchandise trade -

Source: Stats NZ

In the three months ending March, imports of capital goods fell 9.8%, consumption goods imports fell by 3.2% and intermediate goods imports rose 2.8% compared to a year ago.

From April onwards, we expect that the lockdown restrictions announced in many countries around the world will lead to a decline in New Zealand’s merchandise exports. However, Fonterra expects sales to China to return to near-normal by May/June. At the same time, lockdown measures in New Zealand are expected to result in a fall in domestic demand, which should be reflected in lower imports.

…and business confidence fell less than expected#

Headline business confidence fell 3 points to -67% in April from March in the ANZ Business Outlook Survey. This is a small improvement versus the preliminary April read (released earlier this month) of -73%.

A net 55% of firms expect weaker activity for their own businesses (compared to the preliminary reading of -61%). Real sector own activity is the weakest at 67% expecting weaker activity.

Expected profitability, investment and employment intentions all saw small improvements from their preliminary April read, however, all still remain negative. A net 51% of firms intend to lay off staff, with redundancies expected across all sectors.

Inflation expectations rose to 1.5%, compared to 1.3% in the preliminary read.

Globally, restrictions are easing…#

In the United States (US), confirmed COVID-19 cases exceeded 1 million this week. Worldwide, growth in cases is slowing and more countries are easing restrictions on economic activity (Figure 5). In Spain, one of the countries hit hardest, the plan is to ease restrictions in four stages until normality resumes by the end of June, at the earliest.

Figure 5: Confirmed COVID-19 cases per million people (selected countries)

Figure 5: Confirmed COVID-19 cases per million people (selected countries)

Source: Johns Hopkins University (NZ includes probable cases)

…but the data are worsening#

In the US, March quarter GDP was 1.2% lower than in the previous quarter, with personal consumption down 1.9%. The worst is yet to come, with expectations that June quarter GDP might fall by 7% to 8%.

The magnitude of the likely June quarter GDP contraction is shown by the April G-4 (US, euro area, Japan and UK) flash PMIs, which fell sharply especially for the services sector. The G-4 all-industry output composite fell to 22.3 for April, from 36.7 in March; it had stood at 52.1 in January. With restrictions on activity likely to be loosened during May, next month’s PMIs should rebound.

In South Korea, March quarter GDP fell 1.4% from the previous quarter. This is the weakest quarterly result since 2008, but it is much milder than the peak virus impact in many countries, reflecting less stringent public health measures. Weaker private consumption drove the fall, but construction, inventories and net exports provided a partial offset. A shift in the balance of demand is expected in the June quarter as the relaxation of social distancing measures supports consumption and external weakness hinders exports. Nonetheless, the worst of the economic effects of COVID-19 are likely to be behind the nation.

Australian contraction expected to be similar to NZ#

Last week, the Reserve Bank of Australia (RBA) said it expects GDP to fall by around 10% over the first half of 2020, slightly lower than the fall for New Zealand GDP expected by major banks here over the same period. Table 1 summarises some of the social distancing measures that have been put in place in Australia and New Zealand. It is difficult to know exactly how behaviour might have differed in each case under different lockdown conditions. The move to Alert Level 3 in New Zealand has since expanded the range of activities allowed.

Table 1: New Zealand and Australian lockdown measures (at strictest levels)

Measure New Zealand Australia
Confirmed cases per million people 227 263
Case mortality rate 1.7% 1.3%
Restaurants Closed Takeaways allowed
Other non-essential services Closed if not able to work from home Less strict, e.g. hairdressers, real estate agents and appliance stores allowed to operate
Non-essential manufacturing & construction Not allowed Allowed
Social interaction Only people in your household Gatherings capped at 2, unless in the same household
Schools School holidays brought forward School holidays brought forward

Source: Johns Hopkins University, Official government websites, Australian Broadcasting Corporation

Provided restrictions ease over coming weeks, GDP should rebound appreciably in the September quarter in both counties. The RBA expects Australian annual average growth to be around -6% to -7% in 2020, while NZ’s major banks expect NZ growth of about -8½%.

Tables#

Date Key NZ Data Previous
5 May Building Consents 11%
6 May Unemployment Rate 4.0%

 

Quarterly Indicators   2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1
Real Production GDP (1) qpc 1 0.4 0 0.8 0.5 ...
aapc 3.2 3.1 2.9 2.7 2.3 ...
Current account balance (annual) %GDP -3.8 -3.6 -3.4 -3.3 -3 ...
Merchandise terms of trade apc -4.8 -1.9 -1 0.9 6.9 ...
CPI  inflation qpc 0.1 0.1 0.6 0.7 0.5 0.8
apc 1.9 1.5 1.7 1.5 1.9 2.5
Employment (HLFS) (1) qpc 0.1 0 0.7 0.2 0 ...
Unemployment rate (1) % 4.3 4.1 4 4.1 4 ...
Participation rate (1) % 70.6 70.3 70.3 70.4 70.1 ...
LCI salary & wage rates - total (2) apc 1.9 2 2.1 2.5 2.6 ...
QES average hourly earnings - total (2) apc 3.1 3.4 4.4 4.2 3.6 ...
Core retail sales volume apc 5 3.9 3.6 5.4 3.3 ...
Total retail sales volume apc 3.5 3.3 2.9 4.5 3.3 ...
WMM - consumer confidence (3) Index 109.1 103.8 103.5 103.1 109.9 104.2
QSBO - general business situation (1,4) net% -22.6 -26.5 -32 -38.1 -27.7 -67.3
QSBO - own activity outlook (1,4) net% 14.3 6.3 -3.7 -0.6 5.3 -12.7

 

Monthly Indicators   Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20
Merchandise trade balance (12 month total) NZ$m -5055 -4837 -4467 -3927 -3302 -3456
Dwelling consents - residential apc 16.6 3.8 24.1 2.7 6 ...
House sales - dwellings apc -0.3 1 16.9 7.7 12.6 -4.8
REINZ - house price index apc 3.8 5.5 6.5 6.9 8.6 9.3
Estimated net migration (12 month total) people 55025 55543 57259 61053 65211 ...
ANZ NZ commodity price index apc 9.7 18.8 12.2 8.2 7.1 6.2
ANZ world commodity price index apc 7.2 12.4 8.7 5.6 0.6 -5.5
ANZBO - business confidence net% -42 -26 -13 ... -19 -64
ANZBO - activity outlook net% -4 13 17 ... 12 -27
ANZ-Roy Morgan - consumer confidence net% 118 121 123 123 122 106

 

Daily Indicators   Wed
22/4/20
Thu
23/4/20
Fri
24/4/20
Mon
25/4/20
Tue
26/4/20
Wed
27/4/20
NZ exchange and interest rates5              
NZD/USD $ 0.5963 0.5943 0.599 ... 0.6 0.6097
NZD/AUD $ 0.9474 0.9416 0.9426 ... 0.9318 0.9352
Trade weighted index (TWI) index 68.2 67.9 68.4 ... 68.2 69
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.33 0.32 0.31 ... 0.26 0.26
10 year govt bond rate % 0.89 0.92 0.87 ... 0.76 0.7
Share markets6              
Dow Jones index 23476 23515 23775 24134 24102 24634
S&P 500 index 2799 2798 2837 2878 2863 2940
VIX volatility index index 42 41.4 35.9 33.3 33.6 31.2
AU all ords index 5274 5273 5301 5388 5381 5464
NZX 50 index 10418 10446 10419 ... 10760 10666
US interest rates              
3 month OIS % 0.05 0.04 0.05 0.04 0.04 ...
3 month Libor % 1.02 0.99 0.89 0.84 0.76 ...
10 year govt bond rate % 0.63 0.61 0.6 0.67 0.62 0.63
Commodity prices6              
WTI oil US$/barrel 13.78 16.5 15.99 12.17 12.4 ...
Gold US$/ounce 1711 1736 1716 1715 1692 1703
CRB Futures index 351 350 348 348 351 ...

Data in Italic font are provisional.
... Not available.

(1) Seasonally Adjusted
(2) Ordinary time, all sectors
(3) Westpac Mcdermott Miller
(4) Quarterly Survey of Business Opinion
(5) Reserve Bank (11am)
(6) Daily close

 

Country Indicator   2019Q3 Oct 19 Nov 19 Dec 19 2019Q4 Jan 20 Feb 20 Mar 20 2020Q1 Apr 20
United States
[9.6% share of total goods exports]
GDP (1) qpc 0.5       0.5       -1.2  
Industrial production (1) mpc   -0.4 0.9 -0.4   -0.5 0.5 -5.4   ...
CPI apc   1.8 2.1 2.3   2.5 2.3 1.5   ...
Unemployment rate (1) %   3.6 3.5 3.5   3.6 3.5 4.4   ...
Employment change (1) 000s   185 261 184   214 275 -701   ...
Retail sales value apc   3.3 3.3 5.6   4.9 4.5 -5.8   ...
House prices (2) apc   2.2 2.6 2.8   3.1 3.5 ...   ...
PMI manufacturing (1) index   48.5 48.1 47.8   50.9 50.1 49.1   ...
Consumer confidence (1)(3) index   126.1 126.8 128.2   130.4 132.6 118.8   86.9
Japan
[6.1%]
GDP (1) qpc 0       -1.8       ...  
Industrial production (1) mpc   -4 -0.6 0.2   1.9 -0.3 ...   ...
CPI apc   0.2 0.5 0.8   0.6 0.5 0.4   ...
Unemployment rate (1) %   2.4 2.2 2.2   2.4 2.4 2.5   ...
Retail sales value apc   -7 -2.1 -2.6   -0.4 1.6 ...   ...
PMI manufacturing (1) index   48.4 48.9 48.4   48.8 47.8 44.8   ...
Consumer confidence (1)(4) index   36.3 38.7 39   39.2 38.2 31.1   ...
Euro area
[5.5%]
GDP (1) qpc 0.3       0.1       ...  
Industrial production (1) mpc   -0.3 -0.6 -1.8   2.3 -0.1 ...   ...
CPI apc   0.7 1 1.3   1.4 1.2 0.7   ...
Unemployment rate (1) %   7.4 7.4 7.4   7.4 7.3 ...   ...
Retail sales volume apc   1.8 2.5 1.9   2.2 3 ...   ...
PMI manufacturing (1) index   45.9 46.9 46.3   47.9 49.2 44.5   ...
Consumer confidence (5) index   -7.6 -7.2 -8.1   -8.1 -6.6 -11.6   -22.7
United Kingdom
[2.7%]
GDP (1) qpc 0.5       0       ...  
Industrial production (1) mpc   0.2 -1.1 -0.2   0.3 0.1 ...   ...
CPI apc   1.5 1.4 1.3   1.8 1.7 1.5   ...
Unemployment rate (1) %   3.8 3.8 3.8   3.9 4 ...   ...
Retail sales volume apc   3.3 0.6 0.6   0.9 0 -5.9   ...
House prices (6) apc   0.4 0.8 1.4   1.9 2.3 3   ...
PMI manufacturing (1) index   49.6 48.9 47.5   50 51.7 47.8   ...
Consumer confidence (1)(5) index   -10.6 -8.8 -7.1   -6.5 -6.2 -8.2   -22.7
Australia
[15.8%]
GDP (1) qpc 0.6       0.5       ...  
CPI apc 1.7       1.8       2.2  
Unemployment rate (1) %   5.3 5.2 5.1   5.3 5.1 5.2   ...
Retail sales value apc   2.7 3.2 2.4   2.2 5.7 ...   ...
House Prices (7) apc -3.9       2.8       ...  
PMI manufacturing (1) index   51.6 48.1 48.3   45.4 44.3 53.7   ...
Consumer confidence (8) index   92.8 97 95.1   93.4 95.5 91.9   75.6
China
[24.3%]
GDP apc 6       6       -6.8  
Industrial production apc   4.7 6.2 6.9   -13.5 -13.5 -1.1   ...
CPI apc   3.8 4.5 4.5   5.4 5.2 4.3   ...
PMI manufacturing (1) index   49.3 50.2 50.2   50 35.7 52   ...
South Korea
[3.0%]
GDP (1) qpc 0.4       1.3       -1.4  
Industrial production (1) mpc   -1 0.5 3.6   -1.5 -3.8 4.6   ...
CPI apc   0 0.2 0.7   1.5 1.1 1   ...

 

(1) Seasonally adjusted
(2) Case-Shiller Home Price Index 20 city
(3) The Conference Board Consumer Confidence Index
(4) Cabinet Office Japan
(5) European Commission
(6) Nationwide House Price Index
(7) Australian Bureau of Statistics
(8) Melbourne/Westpac Consumer Sentiment Index