Weekly economic update

Weekly Economic Update - 29 May 2020

Formats and related files

Weekly Economic Update - 29 May 2020#

Gatherings in New Zealand can increase to 100 people from today, and some high-frequency indicators of economic activity are close to normal levels, although the outlook remains highly uncertain. Retail sales showed a modest decline in the March quarter, with a significant drop expected in the June quarter. Imports and exports of goods both fell in April, though the sharper drop in imports resulted in the largest monthly trade surplus on record. April filled jobs fell and the number of Jobseeker Support recipients increased.

G-4 flash PMIs improved in May from April’s all-time low. With restrictions easing this month, the rise in the PMIs aligns with the start of a projected recovery and suggests April marks the trough in activity. High-frequency data in a number of countries confirm some incremental improvement in May against the backdrop of an unprecedented shock to activity. In line with this, global risk sentiment has improved, boosting stock markets.

Six days without a new case of COVID-19…#

There have been just three new cases of COVID-19 in the two weeks since New Zealand moved to Alert Level 2, all of which were linked to known clusters (Figure 1). There are fewer than ten known active cases remaining in New Zealand, with 98% of recorded cases now recovered, and there are no people in hospital with the virus. Total tests reached 272,000 on 27 May, which is around 5.4% of the total population.

Figure 1: New confirmed and probable COVID-19 cases since end of Level 4, by infection source

Figure 1: New confirmed and probable COVID-19 cases - WEU 29 May 2020

Source: Ministry of Health

…and NZ restrictions are among the loosest#

The size of all gatherings can increase to 100 from 12pm today (29 May). New Zealand now has some of the loosest restrictions in the world according to the Oxford University Government Response Stringency Index, just a month after having some of the strictest.

Activity indicators are close to normal levels…#

Some high-frequency indicators of economic activity are now close to normal levels, after falling sharply under Alert Levels 4 and 3 (Figure 2). Electronic card spending has been nearly equal to pre-COVID levels during Level 2, after being two-thirds lower at Level 4. Weekday heavy traffic is now around 5% below normal levels, while light traffic remains 20% lower. Electricity demand, which fell by 15% under Level 4, is now above pre-COVID levels.

Figure 2: Average activity at each Alert Level

Figure 2: Average activity at each Alert Level - WEU 29 May 2020

Sources: Waka Kotahi NZ Transport Agency, Electricity Authority, Paymark and Verifone data via Data Ventures

…though the outlook remains uncertain#

The apparent bounce-back in consumer spending may be only temporary, as unemployment and falling asset values are likely to depress consumer spending for some time. Households may also become more risk averse, leading to an increase in precautionary saving. Considering the economy as a whole, the Treasury expects GDP to remain below pre-COVID levels until 2022.

On 22 May, the number of Jobseeker Support recipients reached 189,000, around 6.3% of the estimated working-age population. Weekly growth in recipients continues to slow.

High-Frequency Indicators#

Traffic Movement

Traffic Movement - WEU 29 May 2020

Source: Waka Kotahi NZ Transport Agency

Electricity Demand

Electricity Demand - WEU 29 May 2020

Source: Electricity Authority

Job Seeker Support

Job Seeker Support - WEU 29 May 2020

Source: MSD

Freight Movement

Freight Movement - WEU 29 May 2020

Source: Waka Kotahi NZ Transport Agency

Retail Spending

Retail Spending - WEU 29 May 2020

Source: Paymark and Verifone data via Data Ventures

Fiscal Support: Wage Subsidy (paid)

Fiscal Support: Wage Subsidy (paid) - WEU 29 May 2020

Source: MSD

Modest fall in retail sales in the March quarter…#

Retail sales volumes fell 0.7% in the March quarter and are 2.3% higher year-on-year. Supermarket and grocery volumes rose 8.5% and liquor sales rose 6.1% in the quarter, as people stocked up ahead of lockdown. Large falls were recorded in accommodation, motor vehicles and parts, recreational goods, furniture and food and beverage services. Core retail sales volumes (which exclude the volatile components of petrol and vehicles and parts) rose 0.6% in the quarter with annual growth reaching 4.0% year-on-year. Total sales values fell 0.4% on a quarterly basis (up 3.4% yoy) while core retail sales values rose 0.8% (up 5.3% yoy), reflecting higher prices.

Retail sales are a good indicator of private consumption spending (Figure 3). In line with retail sales, we expect a modest fall in private consumption in the March quarter. With most businesses unable to operate during lockdown, we expect a significant fall in retail sales and private consumption in the June quarter followed by a strong rebound in the September quarter. There is however a risk that high unemployment, lower household incomes and continued uncertainty will result in a slower recovery.

While retail sales may be supported by an increase in domestic travel over the remainder of the year, the absence of high-spending international visitors means that retail sales are likely remain below previous levels.

Figure 3: Private consumption and retail sales

Figure 3: Private consumption and retail sales - WEU 29 May 2020

Source: Stats NZ, the Treasury

…and the monthly trade surplus was the largest on record in April#

Alert Level 4 resulted in a sharp drop in domestic demand and imports in April. The monthly merchandise trade surplus rose to $1.3bn, the largest on record and the annual trade deficit narrowed to $2.5bn, the smallest since March 2015 (Figure 4).

Figure 4: Overseas merchandise trade

Figure 4: Overseas merchandise trade - WEU 29 May 2020

Source: Stats NZ

Imports of goods fell by 22% ($1.1bn) in April compared to the same period last year. The value of goods imports fell by 22.9% in April compared to March, led by fuel imports (down 70.5%) and motor vehicles. Goods exports fell 1.8% compared to last year and 7% from the previous month. This was led by log exports which declined by 54.9% from March. Forestry companies were not able to operate during Alert Level 4, resulting in a 61.8% reduction in the quantity of logs exported. The value of dairy exports rose by 7.2% in April, driven by higher volumes and prices but meat exports declined by 10.3% due to lower demand. The full effects of the lockdown may become more apparent in May’s data, although China’s ongoing recovery should help support demand for New Zealand’s exports in coming months.

Initial signs of employment drop#

The number of filled jobs fell by just over 37,000 in April, (a 1.7% decline) with services industries contributing most of the decline, with over 29,000 jobs lost. These numbers are broadly consistent with the additional 30,000 people recorded as receiving JobSeeker Support payments in April.

The decline in employment is consistent with the Treasury’s view that employment growth will fall in the June quarter. We are anticipating further declines in subsequent months, and overall employment to fall by 6.8% overall in the June quarter. The Treasury expects unemployment to peak at 9.8% in the September quarter before recovering as the economy starts to grow.

China sets 2020 policy targets#

China’s Premier Li delivered the annual government work report at the National People’s Congress (NPC) on May 22. The policy focus this year is on the "six-ensuring" policy to provide resilience in employment, social welfare, market entities (corporates), food and energy security, supply chain stability, and social functions. The report emphasises the importance of economic growth in supporting this resilience, but there is no numerical growth target this year owing to the uncertainty arising from the COVID-19 pandemic and its impact on global growth, although the target for urban job creation remains positive (Table 1).

Table 1:  NPC targets

Table 1:  NPC targets - 29 May 2020

Source: Barclays

The 2020 fiscal deficit target rose to 3.6% of GDP, local government special bond issuance rose and a special COVID-19 government bond issuance was announced. A large share of the bonds is likely to finance increased infrastructure spending, which will stimulate demand for resource imports. However, media reports suggest China is seeking to promote the use of domestic coal by tightening import rules, which is likely to have implications for Australia.

The NPC also announced intentions to amend national security legislation relating to Hong Kong, raising investor concerns about the geopolitical risk amidst the recent escalation in US-China tensions.  

Recovery begins…#

Meanwhile, G-4 countries flash IHS Markit Purchasing Managers Index Surveys (PMI’s) improved to 33.1 in May from April’s all-time low of 22.3, according to JP Morgan’s composite measure. The hardest hit regions (the euro area and UK) and sectors (services) saw the biggest gains over the month (Figure 5). With restrictions easing this month, the rise in the PMI’s aligns with the start of a projected recovery and suggests April marks the trough in activity.

Figure 5: Change in G-4 composite PMIs

Figure 5: Change in G-4 composite PMIs - 29 May 2020

Source: Haver

Australia downgrades cost of JobKeeper…#

The Australian government announced the discovery of material errors in the reporting and estimation of demand for the JobKeeper program, the largest individual component of the government’s fiscal support package. The Treasury now expects 3.5 million people to receive JobKeeper subsidies, below the prior estimate of 6.5 million. As a result, the scheme is now expected to cost AU$70 billion, down from the initial guidance of AU$130 billion.

…and PM announces recovery plan#

Meanwhile, PM Morrison outlined his “JobMaker” economic recovery plan that includes changes in industrial relations, skills, federation reform and a stimulus package for residential housing, which the papers say will be “multibillion-dollar”.

High frequency data in Australia continues to strengthen, with ANZ and CBA reporting card data that shows higher spending than for the same week a year ago, led by retail spending. Travel and entertainment spending lagged, down 53% on last year.

Singapore GDP contracts#

Singapore’s economy contracted by 0.7% in the March quarter from the same period last year, and by 4.7% on an annualised quarterly basis. The decline was led by the services sector, which contracted by 2.4% from a year ago, while manufacturing rose by 6.6%.

Due to the deterioration in the external demand outlook since March, as well as the expected impact of the lockdown that has been in place since 4 April, the Ministry of Trade and Industry lowered their real GDP growth forecast for Singapore to
-7% to -4%, from -4% to -1% previously. The lockdown will be in place until 1 June. In response to the deterioration in the economic outlook, the government revealed a fourth budget package amounting to SGD$33bn in extra measures, taking total fiscal support to 19.2% of GDP.

European Commission proposes €750bn package#

The European Commission proposed a fiscal package worth €750bn to support its members. The proposed package consists of €250bn in loans and €500bn in grants, but the exact ratio is to be discussed at the Commission’s summit on 19 June.

The European Central Bank’s (ECB) biannual financial stability report forecast euro zone budget deficits to rise to 8% of GDP on average this year and aggregate government debt to rise from 86% of GDP to over 100%. Public debt is expected to approach 200% of GDP in Greece, 160% in Italy, 130% in Portugal and just below 120% in France and Spain. The ECB warned that the increase in debt levels could trigger a reassessment of sovereign risk by investors and reignite pressures on more vulnerable sovereigns.    

Global risk sentiment improves#

Global stock markets have performed well over the past week, boosted by the gradual return to normal in a number of countries, optimism about potential COVID-19 vaccines, and the European fiscal stimulus proposal. The S&P500 broke through 3,000 points for the first time since early March, and market volatility levels have trended downwards (Figure 6). The Brent crude oil price was also supported initially, but declined on Wednesday due to an unexpected jump in US stockpiles, and following reports that Russia plans to increase oil production from July.

Figure 6: S&P500 and market volatility

Figure 6: S&P500 and market volatility - WEU 29 May 2020

Source: Haver Analytics

Tables#

Date Key NZ Data Previous
2 June Building Consents 37,000 (annual)
2 June Overseas Trade Indexes +2.6% (Terms of Trade)
Quarterly Indicators
Quarterly Indicators   2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1
Real Production GDP1 qpc 1.0 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 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 -0.1 0.6 0.2 0.1 0.7
Unemployment rate1 % 4.3 4.1 4.0 4.1 4.0 4.2
Participation rate1 % 70.7 70.3 70.3 70.4 70.1 70.4
LCI salary & wage rates - total2 apc 1.9 2.0 2.1 2.5 2.6 2.5
QES average hourly earnings - total2 apc 3.1 3.4 4.4 4.2 3.6 3.6
Core retail sales volume apc 5.0 3.9 3.6 5.4 3.3 4.0
Total retail sales volume apc 3.5 3.3 2.9 4.5 3.3 2.3
WMM - consumer confidence3 Index 109.1 103.8 103.5 103.1 109.9 104.2
QSBO - general business situation1,4 net% -22.6 -26.5 -32.0 -38.1 -27.7 -67.3
QSBO - own activity outlook1,4 net% 14.3 6.3 -3.7 -0.6 5.3 -12.7
Monthly Indicators
Monthly Indicators   Nov19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20
Merchandise trade balance (12 month total) NZ$m -4837 -4467 -3927 -3300 -3403 -2496
Dwelling consents - residential apc 3.8 24.1 2.7 6.0 -8.7 ...
House sales - dwellings apc 1.0 16.9 7.7 13.4 1.6 -78.5
REINZ - house price index apc 5.5 6.5 6.9 8.5 9.1 8.5
Estimated net migration (12 month total) people 55940 58556 62177 66515 71456 ...
ANZ NZ commodity price index apc 18.8 12.2 7.7 6.6 5.8 0.9
ANZ world commodity price index apc 12.4 8.7 5.1 0.1 -5.8 -9.2
ANZBO - business confidence net% -26 -13 ... -19 -64 -67
ANZBO - activity outlook net% 13 17 ... 12 -27 -55
ANZ-Roy Morgan - consumer confidence net% 121 123 123 122 106 85
Daily Indicators
Daily Indicators   Wed
13/5/20
Thu
14/5/20
Fri
15/5/20
Mon
18/5/20
Tue
19/5/20
Wed
20/5/20
NZ exchange and interest rates5              
NZD/USD $ 0.6108 0.6125 0.6117 0.6099 0.6126 0.6193
NZD/AUD $ 0.9318 0.9332 0.9329 0.9329 0.9323 0.9317
Trade weighted index (TWI) index 69.1 69.3 69.2 69.2 69.4 69.9
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.25 0.25 0.25 0.26 0.26 0.26
10 year govt bond rate % 0.65 0.7 0.62 0.61 0.65 0.71
Share markets6              
Dow Jones index 24576 24474 24465 ... 24995 25548
S&P 500 index 2972 2949 2955 ... 2992 3036
VIX volatility index index 28 29.5 28.2 ... 28 27.6
AU all ords index 5680 5661 5609 5730 5890 5885
NZX 50 index 10788 10732 10663 10776 10915 11049
US interest rates              
3 month OIS % 0.05 0.05 0.05 0.05 0.05 ...
3 month Libor % 0.36 0.36 0.37 ... 0.37 ...
10 year govt bond rate % 0.68 0.68 0.66 ... 0.69 0.68
Commodity prices6              
WTI oil US$/barrel 33.49 33.92 33.25 ... 34.35 ...
Gold US$/ounce 1748 1725 1734 ... 1720 1695
CRB Futures index 369 368 366 ... 367 ...

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   Oct 19 Nov 19 Dec 19 2019
Q4
Jan 20 Feb 20 Mar 20 2020
Q1
Apr
20
May 20
United States
[9.6% share of total goods exports]
GDP1 qpc       0.5       -1.2    
Industrial production1 mpc -0.4 0.9 -0.4   -0.5 0.1 -4.5   -11.2 ...
CPI apc 1.8 2.1 2.3   2.5 2.3 1.5   0.3 ...
Unemployment rate1 % 3.6 3.5 3.5   3.6 3.5 4.4   14.7 ...
Employment change1 000s 185.0 261.0 184.0   214.0 251.0 -881.0   -20537.0 ...
Retail sales value apc 3.3 3.3 5.6   4.9 4.5 -5.7   -21.6 ...
House prices2 apc 2.2 2.6 2.8   3.1 3.5 3.9   ... ...
PMI manufacturing1 index 48.5 48.1 47.8   50.9 50.1 49.1   41.5 ...
Consumer confidence1,3 index 126.1 126.8 128.2   130.4 132.6 118.8   85.7 86.6
Japan
[6.1%]
GDP1 qpc       -1.9       -0.9    
Industrial production1 mpc -4.0 -0.6 0.2   1.9 -0.3 -3.7   ... ...
CPI apc 0.2 0.5 0.8   0.6 0.5 0.4   0.2 ...
Unemployment rate1 % 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 -4.7   ... ...
PMI manufacturing1 index 48.4 48.9 48.4   48.8 47.8 44.8   41.9 ...
Consumer confidence1,4 index 36.3 38.7 39   39.2 38.2 31.1   21.3 ...
Euro area
[5.5%]
GDP1 qpc       0.1       -3.8    
Industrial production1 mpc -0.4 -0.5 -1.6   1.9 -0.1 -11.3   ... ...
CPI apc 0.7 1.0 1.3   1.4 1.2 0.7   0.3 ...
Unemployment rate1 % 7.4 7.4 7.3   7.3 7.3 7.4   ... ...
Retail sales volume apc 1.8 2.4 1.8   2.3 2.5 -9.2   ... ...
PMI manufacturing1 index 45.9 46.9 46.3   47.9 49.2 44.5   33.4 ...
Consumer confidence5 index -7.6 -7.2 -8.1   -8.1 -6.6 -11.6   -22 -18.8
United Kingdom
[2.7%]
GDP1 qpc       0.0       -2.0    
Industrial production1 mpc 0.2 -1.1 -0.2   -0.1 -0.1 -4.2   ... ...
CPI apc 1.5 1.4 1.3   1.8 1.7 1.5   0.8 ...
Unemployment rate1 % 3.8 3.8 3.8   3.9 4.0 3.9   ... ...
Retail sales volume apc 3.1 0.7 0.6   0.9 0.2 -5.9   -22.6 ...
House prices6 apc 0.4 0.8 1.4   1.9 2.3 3.0   3.7 ...
PMI manufacturing1 index 49.6 48.9 47.5   50.0 51.7 47.8   32.6 ...
Consumer confidence1,5 index -10.6 -8.8 -7.1   -6.5 -6.2 -8.2   -22.7 ...
Australia
[15.8%]
GDP1 qpc       0.5       ...    
CPI apc       1.8       2.2    
Unemployment rate1 % 5.3 5.2 5.1   5.3 5.1 5.2   6.2 ...
Retail sales value apc 2.7 3.2 2.4   2.2 5.7 9.4   ... ...
House Prices7 apc       2.8       ...    
PMI manufacturing1 index 51.6 48.1 48.3   45.4 44.3 53.7   35.8 ...
Consumer confidence8 index 92.8 97 95.1   93.4 95.5 91.9   75.6 88.1
China
[24.3%]
GDP apc       6.0       -6.8    
Industrial production apc 4.7 6.2 6.9   -13.5 -13.5 -1.1   3.9 ...
CPI apc 3.8 4.5 4.5   5.4 5.2 4.3   3.3 ...
PMI manufacturing1 index 49.3 50.2 50.2   50.0 35.7 52.0   50.8 ...
South Korea
[3.0%]
GDP1 qpc       1.3       -1.4    
Industrial production1 mpc -1.0 0.5 3.6   -1.5 -3.8 4.6   ... ...
CPI apc 0.0 0.2 0.7   1.5 1.1 1.0   0.1 ...

(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