ANZ Data Wrap

ANZ Data Wrap is a weekly report containing reviews and previews of the latest economic indicators and financial market developments.

2024 editions

6 December 2024

This week we revised up our forecast milk price for the current season by 85c to $9.85/kg MS and released our inaugural forecast for next season at $9.00/kg MS. Despite the lift in returns the dairy sector is consolidating rather than expanding, with many farmers focusing on reducing debt.

The final quarterly auction of carbon credits for the year this week resulted in some of the credits on offer being purchased at the floor price of $64/NZU.

Despite growth slowing across the Tasman, Australia’s economy continues to outperform New Zealand’s. However, the good news is that conditions are now in place for a cyclical recovery in New Zealand, so 2025 may well be the year we get one over the Australians with a stronger growth performance.


29 November 2024

After senior RBNZ staffs were united in parading a third 50bp cut in February as their default expectation (despite a non-committal OCR track in Wednesday’s MPS), we have made that our baseline expectation too. One would now have to have markedly different near-term forecasts from the RBNZ to not also have a 50bp cut as the default expectation at this point. And in fact, our forecasts for the data between now and then are almost identical. Beyond that, we have a follow-up 25bp cut in April, taking the OCR to a low of 3.5% as before. The low for the OCR this cycle will depend very much on the vigour with which the economy responds to the monetary easing, which is highly uncertain.

This week’s economic data continued to highlight the stark divergence between current conditions and expectations for the future, including retail sales and our November Business Outlook and Consumer Confidence surveys.


22 November 2024

We expect the RBNZ to cut 50bp, taking the OCR to 4.25% to welcome in the new year. A 50bp cut would be consistent with RBNZ October messaging, economists’ forecasts, and market pricing. Indeed, a 50bp cut is fully priced, with around an 18% chance of a 75bp cut. That seems fair. A 50bp cut is clearly the path of least resistance, but if there is going to be a surprise, given the RBNZ’s confidence regarding the inflation outlook and the unusually long gap until the next meeting (February 2025), 75bp seem likelier than 25bp. 

Given scope for underlying judgements to change, assuming consistency between the RBNZ’s forecasts and policy decisions is risky. But starting point surprises still matter, and our RBNZ starting-point surprise chart pack shows some recalibration for recent data and OCR decisions will be required.

This week we published our Quarterly Economic Outlook. We now expect a faster recovery in economic activity, following front-loaded easing by the RBNZ and emerging signs the economy is already responding. Business confidence has lifted sharply, the housing market is showing signs of life, and activity indicators are off their lows. That said, it will take time for lower interest rates to be reflected in hard economic outcomes. There’s still a tough period to navigate in the near term with the economy still near the bottom of the cycle and labour market conditions still adjusting. 


15 November 2024

ECT core retail card spending rose 0.6% m/m in October, buoyed by a strong lift in spending on hospitality. Following six months of contraction, card spending is now trending higher once again, with spending lifting on average 0.5% m/m since August. That coincides with income tax relief that started from 31 July, the move lower in interest rates, and lower fuel prices.

The REINZ House Price Index fell 0.5% m/m in October, but there were signs of a shift in momentum in the market. Sales volumes rose 0.8% m/m in seasonally adjusted terms and September’s fall was also revised away. That saw sales volumes return to around the historic average for this time of year, with the three-month moving average up 6.6% q/q. Meanwhile, days to sell fell from 49 to 46. That’s still a long way above the long-run average of 39, but the fall tentatively suggests the market is on a tightening trajectory (though still in loose in an absolute sense). Alongside the sustained bounce in the auction clearance rate over recent months, the data reinforce our expectation of a recovery in house prices across 2025.

This week also delivered the first snapshot of Q4 CPI inflation with the release of October’s Selected Price Indexes (SPI). Overall, our weighted aggregate index fell 0.1% m/m, close to our expectations, and consistent with our current forecast for Q4 CPI to slow to 2.1% y/y (RBNZ: 2.3% y/y).

Further afield the focus has been on what policies Trump will put in place once he takes the reins at the White House. Election campaign promises are expected to be watered down somewhat but increased tariffs are certainly on the cards. New Zealand’s economy is likely to be most affected by tariffs placed on some of our other major trading partners such as China and the EU. The US is a major trading partner for New Zealand, with beef being our largest export. New Zealand’s lean beef is typically combined with US meat to create meat patties with the ideal fat content. Therefore, restricting access for NZ beef would do little to support US farmers, while it would push up the cost of a burger for US consumers.


8 November 2024

Broadly speaking, President-elect Trump’s policy agenda represents an upside risk to US inflation, wider-for-longer fiscal deficits, higher global bond yields, and weaker economic growth outside of the US.

Not surprisingly then, markets reacted to the Trump win by driving the USD and bond yields higher. While both have corrected lower, with US data still painting a picture of resilience and the Fed’s tone more balanced, markets are wary of the potential for higher bond yields and steeper yield curves.

NZ’s Q3 labour market release was close to our expectation, with the unemployment rate rising 0.2%pts to 4.8%, employment contracting as labour demand continues to soften, and the participation rate falling as opportunities in the labour market continue to fade.

Our updated labour market forecast is little changed from previously. We expect the unemployment rate to rise to 5.1% in Q3, peaking at 5.5% in the middle of 2025 before gradually declining to 4.8% by the end of 2026 as the withdrawal of monetary restraint facilitates a modest recovery.


1 November 2024

The US presidential election is set to be held on Tuesday 5 November, with results likely to be reported from around midday Wednesday 6 November (NZT). Polling suggests the race is too close to call, while betting markets have Donald Trump as the favourite.

The Q3 labour market data will be released Wednesday 6 November. We expect the unemployment rate lifted 0.3%pts to 4.9%. That would be very close to the RBNZ’s August MPS forecast of 5.0%, and certainly not a large enough variance to challenge the broad narrative.

Given typical volatility in the HLFS, we think it would take a significantly lower unemployment rate than the RBNZ’s forecast of 5.0% to take a 50bp cut off the table in November. A higher unemployment rate than that, on the other hand, would very likely see market pricing shift further in favour of a 75bp cut – and may see economists equivocating.


25 October 2024

New Zealand’s annual trade deficit narrowed just $300m to $9.1bn in September, still far too wide to be called sustainable. Progress on narrowing the deficit has slowed over recent months as export performance has disappointed, while import demand cools only gradually.

To balance the books New Zealand needs to be producing a larger proportion of higher-value goods, as the option to simply increase volumes is limited for many industries. More intensive land uses, such as horticulture, will potentially generate higher returns, but only if there is the marketing to support the products being produced. To do this well, you tend to need a reasonable level of scale. Our kiwifruit industry has scale but most of our other horticulture enterprises lack scale or have fragmented marketing efforts.

NZ’s greenhouse gas emissions lifted 1.1% q/q in Q2 on a seasonally adjusted basis. Emissions from the electricity sector shot up in Q2 as the sector had to burn more coal to produce electricity with hydro production constrained due to low lake levels. Emissions have generally been trending down relative to economic activity, but in Q2 emissions intensity lifted 1.9% as GDP fell more than emissions did. Emissions per capita also lifted marginally.

Turning to offshore, this week saw the Bank of Canada join the list of central banks that have delivered outsized cuts, with their 50bp cut rounding out 125bp of cuts since June. Eight of the 11 G10 central banks (the USD and the 10 most-traded currencies against it) have now cut, delivering 20 cuts between them. Canada’s cut shored up local market confidence that another outsized RBNZ cut is coming next month, but comments by Governor Orr about having scope to be “more incremental” on the way down have seen the market shift a little closer toward expecting a 50bp cut (rather than 75bp).


18 October 2024

The housing market’s pulse in September was weak: After seasonal adjustment sales fell 2.3% m/m (broadly flat in y/y terms), the number of days it is taking houses to sell lifted by 2 days to 50 (very high by historical standards), and the number of properties available for sale, while starting to plateau, edged a little higher (currently at their highest level since July 2015). The market is very clearly running cold. But despite all this, the national-level house price index lifted 0.3% m/m after seasonal adjustment, leaving prices down 0.4% y/y on a 3-month moving average basis.

The slowdown we’ve seen in housing market activity and the residential construction sector is contributing to lower CPI inflation pressures. That was clear in the Q3 CPI data, which slowed from 3.3% y/y in Q2 to 2.2% (slightly weaker than our forecast of 2.3%). 

With the Q3 CPI in the bag, we’ve updated our CPI forecast. The bulk of the surprise in the Q3 CPI vs our forecast came from the one-off impact of the FamilyBoost rebate, meaning there wasn’t a lot of new news to incorporate into our updated CPI forecast other than the starting point. We continue to pencil in a 0.4% q/q rise in the CPI in Q4, driven by a 0.7% q/q lift in non-tradables and a 0.1% contraction in tradables. That would see annual headline inflation slow 0.1% pt to 2.1%. While we and the RBNZ remain concerned about structurally higher inflation over the medium term, cyclical indicators suggest there is enough spare capacity in the economy to guide domestic inflation back to where it needs to be. We continue to pencil in a 50bp cut in November. 


11 October 2024

The RBNZ cut the Official Cash Rate by 50bp to 4.75% at this week’s Monetary Policy Review. Financial markets and almost all economists approached this week’s decision with the view that the RBNZ would likely cut 50bp, despite the August Monetary Policy Statement setting up a 25bp cut, and no significant data surprises since then. The Record of Meeting notes that the Committee discussed the relative benefits of cutting 25 or 50bp and agreed that “a 50-basis point cut at this time is most consistent with the Committee’s mandate,” describing a 4.75% OCR as “still restrictive.”

The tone of the Policy Assessment tilted to the dovish side, consistent with ongoing cuts. There was nothing in the commentary to dissuade the market from continuing to price a follow-up 50bp cut in November. That seems entirely fair, and it’s our forecast. If the RBNZ remains confident that inflation is beaten, then getting the OCR rapidly closer to neutral is a very defensible strategy.

Next Wednesday the Q3 CPI data are released. We expect annual headline inflation to slow 1%pt to 2.3%, marking the first time annual inflation has been back in the 1-3% target band since Q1 2021.


4 October 2024

We have pencilled in a 50bp cut at next Wednesday’s Monetary Policy Review, but this one is feeling like a bit of a coin toss, with economic arguments for a 25bp versus 50bp cut quite balanced. At the end of the day, now that most economists are calling it and the market is pretty much fully pricing it, one has to conclude that on balance the likeliest scenario is that the RBNZ will just take what’s on the table and go 50bps. Our updated OCR forecast is for 50bp cuts in both October and November, followed by 25bp cuts at each meeting from February 2025 until the OCR gets to 3.5% in May 2025 (our terminal OCR forecast has not changed).

Business survey data this week reaffirmed that while the economy is still doing it tough, firms are responding favourably to interest rate falls. The NZIER’s QSBO in particular contained strong disinflationary signals, with labour as a limiting factor at its lowest level in more than a decade, suggesting sticky domestic inflation risks stemming from the labour market are well mitigated. QSBO’s pricing intentions dropped like a stone too. But it’s not all one-way traffic. ANZBO pricing intentions remain elevated, and actually lifted in the month of September. And cost pressures in both surveys, while easing, remain stubbornly high too.

Selected Price Indexes (SPI) for September are out Friday 11 October, and will be the last piece of the puzzle ahead of the Q3 CPI. Flat food prices, another 0.3% m/m rise in rents, lower petrol prices (-3.5% m/m) and weaker accommodation prices are expected to see our estimated weighted SPI index fall 0.5% m/m. We’ll publish our Q3 CPI Preview after these data are released, but currently see risks around our 0.8% q/q forecast as balanced.


27 September 2024

It’s been a quiet week on the domestic data front, but that hasn’t dampened the debate over the RBNZ’s next move. With less than two weeks until the RBNZ’s 9 October Monetary Policy Review, we thought we’d take the opportunity to lay out the arguments for and against the RBNZ stepping up the pace of OCR cuts to a 50bp move. That’s the outcome that financial markets are betting on, with 43bp of easing priced in for October. Our expectation is the RBNZ will cut by 25bp (conditional on what the NZIER QSBO brings).

NZIER’s Q3 Quarterly Survey of Business Opinion (QSBO) is released next Tuesday. We expect the same theme as the ANZ Business Outlook survey: sentiment improving in response to lower interest rates. That said, our focus on the day will be on what this means for firms’ pricing behaviour and the inflation outlook. Capacity measures in QSBO will be key for the latter. While Q2 GDP (-0.2% q/q) was stronger than the RBNZ’s August MPS forecast of -0.5% q/q, whether/how this impacts the RBNZ’s estimate of the output gap isn’t straightforward. The RBNZ uses a wide range of indicators to estimate the degree of spare capacity in the economy, and the QSBO measures are certainly some of the more important ones.


20 September 2024

The annual current account deficit was little changed from a downwardly revised $27.6bn in Q1 to $27.8bn in Q2. As a share of GDP, it was unchanged at 6.7%, still wider than any reasonable estimate of sustainable levels. We had gone into this release expecting better news, with a narrower deficit (6.6%) and possible upwards revisions to services exports. While the latter did occur, they were accompanied by offsetting revisions to the income deficit. All in all, the data now show that the annual deficit troughed at a wider share of GDP than previously thought (9.4% in Q4 2022 vs 8.8% previously), and while the subsequent narrowing from there to early 2024 has been relatively sharp, the lack of progress in Q2 is concerning.

This week’s Q2 GDP report was better than feared, though certainly not strong in any sense of the word. The economy contracted 0.2% q/q in Q2, close to our expectation of -0.1% q/q, but well above the RBNZ’s forecast of -0.5% q/q. Putting the weakness into perspective, the RBNZ’s potential output growth assumption (the economy’s growth speed limit before generating inflation) was +0.6% q/q for Q2. Given today’s outturn was well below this threshold, it’s highly likely that the RBNZ will interpret these data as consistent with rising spare capacity and ongoing disinflation.


13 September 2024

The August Selected Price Indexes release this week confirmed that risks to our Q3 CPI forecast were skewed to the downside. We have therefore downgraded our Q3 CPI pick from 1.0% q/q (2.6% y/y) to 0.8% q/q (2.3% y/y). However, in terms of what’s behind the downgrade, it’s important to note that it’s all coming from the relatively volatile tradables component, with weaker-than-expected petrol prices behind the bulk of that, driven by a mix of the removal of Auckland’s regional fuel tax (which we did expect) and falling global oil prices. 

New Zealand’s Q2 Balance of Payments and GDP figures will be released at 10:45am next Wednesday and Thursday respectively. We’ve pencilled in a 0.1% q/q (-0.3% y/y) contraction in Q2 (previously -0.3% q/q). While our forecast is well above the RBNZ’s August MPS forecast of -0.5% q/q (-0.7% y/y), it’s certainly not ‘strong’ in any sense of the word. The annual current account deficit is expected to narrow 0.2% points of GDP to 6.6%, and revisions to services exports in prior quarters could shave another 0.3%pts or so off that (note: forecasting revisions can be a dangerous game!).

In other data this week (hot off the press this morning), we also have two more post-MPS high-frequency data releases: the August PMI and REINZ house sales. The latter revealed yet another soggy month for the housing market, but it’s still a bit too early to expect to see the impacts of falling mortgage rates (perhaps next month). Meanwhile, the PMI bounced a little further, albeit to subdued levels overall. Clearly, manufacturing momentum looks like it’ll remain soft in Q3 – next week’s Q2 GDP data will provide the first evidence on how much signal the recent weakness in high-frequency indicators contained. 


6 September 2024

The merchandise terms of trade lifted 2.0% q/q in Q2, broadly in line with our expectation, though still around 9% below the 2021 peak. Export prices lifted 5.2% q/q, led by gains in dairy and meat, while forestry returns continue to be hampered by the slowdown in China’s property sector. Import prices rose 3.1% q/q, with import prices excluding fuels up 2.9% q/q. That may be of some concern to the RBNZ given the implications for tradable inflation, but it follows a fall of a similar magnitude in Q1. Looking at the broader trend over recent quarters, import prices have been largely flat.

Our Commodity Price Index saw the NZD Price Index lift 1.5% m/m in August, reflecting a 2.1% m/m rise in the World Price Index and a 0.7% m/m fall in the NZD Trade Weighted Index. Dairy and meat prices led the charge, up 2.7% m/m and 3.2% m/m respectively in world price terms. 

Globally, the US non-farm payrolls data over the weekend is a key focal point for markets trying to work out how aggressively the FOMC might enter the global easing cycle. 

Domestically, the last of the Q2 GDP partials (eg manufacturing survey) are out next week, and so too are the Selected Price Indexes (SPI) for August. Risks around our Q3 GDP forecast of -0.3% are feeling broadly balanced ahead of these data, but we are going into the SPI with some downside risk to our Q3 CPI forecast of 1.0% q/q (RBNZ: 0.8% q/q), but this is largely via the more volatile tradables component.


30 August 2024

Monthly filled jobs fell 0.1% m/m in July, remaining on an unambiguously weak trajectory and indicating that excess economic capacity continues to build.

Our August Business Outlook saw headline confidence spike to its highest level in a decade, with many of the forward-looking activity indicators following suit. However, experienced activity remains subpar, suggesting it’s still tough out there.

ANZ-Roy Morgan Consumer Confidence lifted in August, up another 4 points to a still-subdued 92.2. Cutting the data into pre- and post-MPS samples didn’t reveal a significant difference in headline confidence, but it was notable that confidence was higher in the second half of the month for those paying off mortgages, but lower for renters.

We’ve lifted our farmgate milk price forecast for the current (2024/25) season by 50c to $9.00/kg milksolid. 


23 August 2024

The July snapshot of high-frequency economic indicators show a synchronous bounce, albeit to still-subdued levels. The evolution of these indicators over coming months will be important for gauging the economy’s responsiveness to lower interest rates and the risks surrounding the RBNZ’s easing profile.

This week we published our Agri Focus. The outlook for the primary sector is generally improving but it is very mixed. The dairy and beef sectors are doing well but returns for sheep and forestry are still very low. Farmer sentiment has generally been buoyed by recent regulatory changes, falling interest rates, and relatively favourable weather conditions.


16 August 2024

The RBNZ cut the Official Cash Rate (OCR) 25bp to 5.25% this week in what the Record of Meeting notes was a consensus decision. Our updated OCR forecast is for 25bp cuts at each meeting, to a low of 3.5%.

The Selected Price Indexes release this week points to a smidgen of downside risk to our Q3 CPI forecast of 1.0% q/q. However, this is just the first month of the quarter, and given some of the surprise came from the more volatile components we’re happy noting the risk to our forecast and waiting for the August release. Compared to the RBNZ’s Q3 CPI forecast of 0.8% q/q, the July SPI is pretty much in line, and therefore do not present a roadblock to another 25bp cut in October.

This week we also published our Quarterly Economic Outlook. Recent high-frequency data suggests the slowdown in the economy is broadening and gathering pace. While interest rates are heading lower, there are still risks to the disinflation trajectory and the pace of policy easing remains uncertain.


9 August 2024

This week was all about the Q2 labour market data. The unemployment rate rose 0.2%pt to 4.6%, in line with the RBNZ’s May MPS forecast and providing no smoking gun for imminent cuts. We have updated our outlook for the labour market. Compared to our previously published forecast, changes to our unemployment rate forecast are relatively minor, but under the hood we have downgraded our expectation for both labour demand and labour supply just a little. 

Domestic focus next week will be firmly on the August MPS. We expect the RBNZ to hold the OCR at 5.5%. The data since May, and particularly since the July Monetary Policy Review, points to a clearly slowing economy, and solid disinflation progress. That justifies cutting the OCR far earlier than August 2025, as was signalled in the previous Monetary Policy Statement. But while we certainly wouldn’t rule out a cut next week, it is difficult to justify such a radical change in the RBNZ’s thinking based on the evolution of data in recent months. 

Selected Price Indexes for July are also out next week. We’ve pencilled in a 0.3% m/m lift for both food and rents. MBIE data suggests petrol prices rose 2.5% m/m. Domestic and international airfares and domestic and overseas accommodation prices are expected to lift modestly m/m, but these components often surprise on the day. All up, these data will give us our first steer on how the Q3 CPI is shaping up, but typical m/m volatility means we should always treat the first month of the quarter with a little caution. 


2 August 2024

The July ANZ Business Outlook survey was a mixed bag. Forward-looking activity indicators generally bounced, but it’s worth remembering that they are expressed as expectations of higher or lower versus current conditions, and those generally continue to worsen.

We’ve downgraded our near-term house price forecast and now expect a 1% contraction in prices over 2024 (previously +1%). Subdued sales activity and rising stock on the market suggest that weakness is likely to persist in the near term.

The Q2 labour market statistics are out next Wednesday, marking the last major piece of data ahead of the RBNZ’s August Monetary Policy Statement. We expect the unemployment rate to lift from 4.3% to 4.7% in Q2. While that’s very close to the RBNZ’s May MPS forecast of 4.6%, the details are expected to be a touch softer than their expectation. In big-picture terms, while the Q2 labour market data may not provide the smoking gun for rate cuts that the market appears to be looking for, the recent downturn in almost all the forward-looking indicators suggests downside risks are emerging around our economic outlook and that the gradual loosening we’ve seen in the labour market over the past year or so could be on the cusp of accelerating.


26 July 2024

New Zealand’s annual trade deficit narrowed to $9.4bn in June, a marked improvement from the record deficit of over $17bn recorded in the year to May 2023, but still far from a level anyone could call sustainable.

The trade deficit is improving, though the adjustment will take some time. Restrictive interest rate settings are curtailing import demand, while import prices are easing in line with weakening global demand and the post-COVID normalisation in global supply chains. But the recovery in the trade balance is not without its challenges. Export returns are under pressure due to weak demand from China.

China’s economy is adjusting from a heavy focus on property investment and export returns to an economy that is driven more by domestic consumption. Unfortunately, the marked downturn in the property market and reduced employment opportunities have eroded confidence amongst Chinese consumers. While China’s economy continues to struggle, its demand for the products that New Zealand supplies, such as logs for construction timber, is also likely to remain subdued. It is expected to take several years for China’s property market to recover and this has been one of the drivers of lower confidence amongst Chinese consumers. 


19 July 2024

This week’s Q2 CPI report all but confirmed that headline inflation will be back within the RBNZ’s 1-3% target band next quarter. Headline inflation fell from 4.0% to 3.3%, in line with our forecast, but below the RBNZ’s May MPS forecast of 3.6%.

On the back of the more reassuring CPI data, we have changed our OCR call and now expect the first OCR cut to occur in November (previously February), with the risks tilted towards an earlier start.

With the Q2 CPI data in the bag, we’ve updated our inflation forecasts. Our near-term outlook is broadly unchanged. Headline inflation looks set to be comfortably back within the 1-3% target band in Q3 on its way to 2%. Weaker tradable inflation continues to drive headline inflation lower, and we are growing increasingly confident that disinflation momentum will persist. Outside of persistence effects, we have downgraded our medium-term inflation outlook, reflecting the recent broad deterioration in activity and labour market indicators.


12 July 2024

As universally expected, the RBNZ left the Official Cash Rate (OCR) unchanged at 5.50% at this week’s Monetary Policy Review. 

The tone of the Policy Assessment and Summary Record of Meeting covered all bases, with sticky inflation risks getting a mention (no surprises there), and the softer vibe of some of the recent growth and inflation indicators also acknowledged (this wasn’t a surprise, but went a touch further than we thought likely). In particular, it was the hint that the RBNZ may be close to reassessing their medium-term inflation outlook on the back of recent soft survey data that got markets excited, with short end rates moving sharply lower.

Attention now turns to next week’s Q2 CPI report. We expect headline inflation rose 0.4% q/q, taking annual inflation down from 4.0% to 3.3%. Such an outcome would be below the RBNZ’s May MPS forecast of 3.6% y/y, though that reflects weaker tradable inflation, particularly across volatile components such as food, fuel and airfares. We expect tradable inflation of -0.2% q/q (0.6% y/y), well below the RBNZ’s May MPS forecast of 0.3% q/q (1.1% y/y). On non-tradable inflation, where the RBNZ’s attention has been fixed of late, we are forecasting a 0.8% q/q rise (5.3% y/y), in line with the RBNZ’s May MPS forecast, with balanced risks.


5 July 2024

The NZIER’s Q2 Quarterly Survey of Business Opinion (QSBO) made for grim reading. Business sentiment remains dire, while experienced domestic trading activity, which historically has given a good steer on GDP (COVID volatility aside) also deteriorated further. While the operating environment for businesses is incredibly challenging, the report confirmed that monetary tightening is having the desired impact of generating spare capacity across the economy, leading to lower cost and pricing pressures. 

Next week brings the RBNZ’s July Monetary Policy Review (MPR). We expect the OCR will remain unchanged at 5.50%. Since the May MPS, the data have tilted weaker, but it’s primarily been the ‘soft’ data (surveys and anecdotes). We’d expect the evolving data tone to be acknowledged, but such data faces a high bar to bring about an overall change in rhetoric from the RBNZ compared to, say, CPI inflation or unemployment rate data.


27 June 2024

ANZ-Roy Morgan Consumer Confidence Index and our Business Outlook deteriorated in June. The latter suggests the NZIER’s QSBO will make for grim reading next week. But it also showed a decent fall in inflation indicators, with both the proportion of firms intending to raise prices imminently, and the expected magnitude of those price increases, sharply lower.

QSBO indicators of capacity stretch will be a key focus for us (and the RBNZ) next week as we assess the degree of inflation pressures in the economy. The limiting factors on production, ease of finding labour, and capacity utilisation measures will all be important. Our suite of capacity indicators suggests the economy has been in disinflationary mode for about a year now, whereas the RBNZ’s current estimate is that the economy has only just reached disinflationary territory. In any case, forward indicators of labour market slack certainly suggest a widening output gap is just a matter of time.


21 June 2024

At 0.2% q/q, Q1 GDP was in line with our and the RBNZ’s expectation. However, there were overs and unders in the details which the RBNZ could use to justify a small shift in view in either direction (depending on what takes the Committee’s fancy). Our take is that the GDP data are not a game changer for the RBNZ, and we remain comfortable predicting that OCR cuts will arrive sooner than the RBNZ has signalled. In big picture terms, economic momentum is very soft and it looks like there is further to soften. 

Indeed, forward indicators such as our Business Outlook survey, the PMI and PSI, house sales and visitor arrivals suggest the economy is sputtering and that quarterly growth in Q2 is likely to be weaker than Q1. Accordingly, we’ve downgraded our Q2 GDP forecast from +0.2% q/q to -0.1% (RBNZ: +0.1% q/q).

Meanwhile, the annual current account deficit narrowed slightly less than expected in Q1, and at 6.8% of GDP it’s still too wide to call sustainable. Taking signal from last week’s visitor arrivals data suggests the services balance is not going to return to surplus as quickly as previously hoped, meaning current account deficits are likely to be wider for longer. This, combined with a weaker growth outlook and more persistent fiscal deficits adds to the risk that New Zealand’s rebalancing act with the rest of the world ends up requiring a more abrupt and painful correction in domestic demand than currently anticipated. High CPI inflation certainly isn’t the only symptom of an overheated, overstimulated economy through COVID, and the medicine is bitter.


14 June 2024

May’s Selected Price Indexes (SPI) were weaker than our expectations. However, weakness reflected volatile components and there remains a risk of a reversal next month. Accordingly, our Q2 CPI forecast remains unchanged at 0.6% q/q (3.5% y/y) for now, though the risk profile is now skewed to the downside.

In other data this week, net migration figures confirmed the cycle has turned, with the annual net inflow coming in around 98.5k in April, down from almost 140k in October 2023. Perhaps the more consequential signal in this week’s travel data comes from short-term arrivals. April arrivals were weak, suggesting that the “shoulder season” for the likes of international tourism and travel-related services exports more broadly is shaping up to be a soft one.

Turning to next week, domestic focus will be on the Q1 GDP figures, released at 10:45am on Thursday. Our forecast is for a 0.2% q/q expansion in production GDP – the same as the RBNZ’s May MPS forecast (but we were there first). Median analyst expectations appear to be a little weaker than our pick, but we’re comfortable that risks are balanced around our forecast.


7 June 2024

New Zealand’s merchandise terms of trade rose 5.1% q/q in Q1, a decent recovery, though not enough to unwind the sharp 7.8% q/q contraction in Q4.

The volume of building work put in place came in weaker than expected in Q1, down 4% q/q. This offsets some of the upside risk to our Q1 GDP pick of 0.2% q/q coming from the stronger retail trade release.

We have tweaked our Official Cash Rate (OCR) forecast and now expect the first OCR cut to come in February 2025, rather than May. We have been talking for some time about the risks towards cuts occurring earlier than May, and now have confidence to centralise those risks into our forecast.


31 May 2024

Our ANZ Business Outlook survey for May made for grim reading. Business confidence fell and activity indicators highlighted weak domestic demand. More positively, inflation indicators showed progress.

Budget 2024 delivered on the Government’s campaign promise to provide tax relief and pay for it with lower spending. From a discretionary fiscal policy perspective, the overall stance of fiscal policy over the next few years looks broadly similar to that presented at the Half-Year Update. Meanwhile, a meaningful downgrade to the economic and tax outlook has delayed the return to surplus by another year to 2027/28.


24 May 2024

As expected, the RBNZ left the Official Cash Rate (OCR) unchanged at 5.50% this week. However, in a shock to markets, the forecast peak OCR was raised from 5.60% to 5.65%, and the Summary Record of Meeting noted that a hike was discussed (though in the end a hold was a consensus decision). The RBNZ’s OCR projection shows that cuts are now pencilled in for August next year, 3-4 months later than in the February MPS. 

Our OCR forecast remains unchanged. We expect the RBNZ to remain on hold until May next year. However, despite the hawkish MPS this week, we still see the risks tilted towards cuts coming earlier rather than later, given the increasingly broad-based weakness in the economy. 

On Thursday next week, the Government will unveil its first Budget and Fiscal Strategy Report, and the Treasury will open up the Government’s books. The macroeconomic and fiscal backdrop for Budget 2024 is very challenging: the economy is anaemic and the labour market is loosening, but pro-cyclical fiscal policy in recent years means fiscal consolidation is now desperately overdue.


17 May 2024

April’s Selected Price Indexes were overall stronger than our expectations. Given the volatility in these data, and the risk of reversal across the coming months, we initially left our forecast unchanged. However, a closer look at the details prompted us to revise up our Q2 CPI forecast 0.1%pts to 0.6% q/q (3.5% y/y) in our Quarterly Economic Outlook, owing to expectations of a stronger non-tradables pulse. That’s not enough to materially alter our outlook, but it does speak to the persistence of non-tradables that is challenging the RBNZ.

Our Quarterly Economic Outlook discusses the question of timing vs traction that is front of mind for policymakers currently. While there has been clear evidence of a deterioration in economic activity over the past year and the labour market is now firmly in disinflationary territory, that is yet to flow through to domestic inflation to the degree anticipated, suggesting that monetary policy lags this cycle are lengthier and/or tightening hasn’t quite gotten as much inflation fighting traction as previously assumed. 

Looking ahead to next week’s May Monetary Policy Statement, we expect the RBNZ to leave the OCR at 5.5%, reiterating that they remain in watch-worry-wait mode. The Q1 forecast miss on non-tradable inflation was the fourth in a row, and at 5.8% y/y, it’s a full 1.4%pts higher than the RBNZ thought it would be by now when they declared they were done hiking a year ago. But recent activity and labour market data have tilted to the softer side of expectations, and risks are growing that the economy could have a harder landing than anticipated. We expect that will keep the RBNZ’s tone balanced.


10 May 2024

This week the New Zealand Treasury published interim Financial Statements of the Government for the 9 months ended 31 March. The details were a little mixed, but we remain comfortable with our previous back-of-the-envelope estimate that the bond programme could be lifted by $10-$12bn over the next four years come Budget on 30 May.

Turning to global events this week, the Reserve Bank of Australia delivered a hawkish pivot, but less so than we anticipated. That’s despite meaningful upwards revisions to the RBA’s inflation forecasts. We continue to favour November for the start of the easing cycle in Australia, although risks remain skewed toward that being delayed into 2025.

We’re often asked about how the New Zealand economy is tracking against Australia – not so much from a rivalry perspective, but more from the perspective of what’s different, and why. International observers often view both countries through the same lens, but right now, there are more differences than there are similarities!


3 May 2024

The Q1 labour market data were slightly weaker than our and the RBNZ’s expectation, but not enough to shift the dial for the RBNZ. The unemployment rate lifted from 4.0% to 4.3%, while other measures of spare capacity reinforced our expectation that a moderation in wage growth and domestic inflation lies ahead.

With the Q1 labour market release not far from our expectation, our updated labour market outlook is largely unchanged. We continue to expect further deterioration, with labour demand weakening while labour supply growth continues. The unemployment rate is expected to breach 5% by year end, and rise to a peak of 5.5% across most of 2025.

In other news this week, the RBNZ’s Financial Stability Report (FSR) came and went with little fanfare. There was a possibility the RBNZ might have announced decisions relating to the easing of LVR restrictions and implementation of DTI limits, though this did not eventuate.


26 April 2024

Farmers are currently struggling as incomes drop due to weak global markets while costs remain very high. Farmers in some regions have also had drought to deal with which is an added financial and mental burden. 

Global market conditions for our primary sector exports vary considerably between products and countries. In general, demand from western nations remains relatively robust, but demand from developing nations tends to be weak. 

Turning to next week, the Q1 labour market statistics are released on Wednesday. Broadly, we expect to see a further increase in spare capacity and a moderation in wage growth that will reinforce expectations that further disinflation lies ahead.

The RBNZ’s Financial Stability Report is also out next Wednesday and may provide confirmation of proposed changes to macroprudential policy settings. Our base case is that when changes are made, they will be as previously signalled. 


19 April 2024

Annual inflation fell from 4.7% to 4.0% in Q1, in line with our forecast, but the details told a less convincing story of disinflation progress. Non-tradables inflation eased only marginally from 5.9% y/y to 5.8% y/y, above our forecast of 5.5% y/y and well above the RBNZ’s February forecast of 5.3% y/y. Domestic inflation pressures remain acute, particularly concentrated in services sectors.

All up, on their own the Q1 CPI data probably aren’t strong enough to demand a radical re-think by the RBNZ, but if they harbour fears that monetary policy settings aren’t tight enough, this data won’t give them any comfort. The domestic outlook does suggest disinflation lies ahead, but the Q1 data could test the RBNZ’s patience. We remain of the view that OCR cuts are not likely until 2025.

With the Q1 data in the bag, we’ve updated our inflation forecasts. Our outlook remains broadly similar, and we continue to expect that inflation will return to the RBNZ’s 1-3% target band in Q3 this year. Though the outlook is not without its risks.


12 April 2024

The RBNZ left the OCR unchanged at 5.5% this week and maintained a similar tone to the February MPS, with the Committee agreeing that “interest rates need to remain at a restrictive level for a sustained period”.

The NZIER’s Quarterly Survey of Business Opinion suggests the post-election honeymoon is over and that the reality of a weak economy is back in the driver’s seat. Importantly, the survey suggests there is further disinflation in the pipeline. In particular, a further decline in labour as a limiting factor suggests pipeline labour costs are very unlikely to drive a reacceleration in domestic (non-tradable) inflation. But we still wouldn’t say these data guarantee the sustained period of disinflation that the RBNZ requires. 

The Q1 CPI is out next Wednesday. We think annual CPI inflation slowed to 4.0% (above the RBNZ’s forecast of 3.8% y/y). However, further progress across the suite of core measures alongside the broader data flow suggesting further disinflation is in the pipeline means the Q1 CPI may not shift the dial meaningfully for the RBNZ. We continue to expect cuts won’t be on the table until 2025.


5 April 2024

In a quiet week for local data offshore developments took centre stage, with PMIs pointing to a rebound in the manufacturing sectors in China and hints of a re-emergence of commodity price inflation, starting to raise questions as to the sustainability of global disinflation.

Next Wednesday brings the RBNZ’s April Monetary Policy Review (MPR). We (along with everyone else) expect the OCR to be unchanged at 5.50%, with a reiteration of the key messages from the February MPS. Data since then has been mixed, but on net there has been nothing to move the dial. 


28 March 2024

This week we released our Consumer Confidence and Business Outlook surveys, which showed a deteriorating economic landscape. Weakness in the economy is of course the RBNZ’s plan. But the fact that the adjustment is necessary doesn’t make it any easier for businesses and consumers. 

The Government’s 2024 Budget Policy Statement also landed this week. While the policy mix has certainly changed (ie tax and spending cuts), the signal from the BPS suggests that discretionary fiscal policy settings will be about par or perhaps mildly less expansionary than implied at December’s Half-Year Update. But future operating allowances are yet to be confirmed. The Government also introduced its new fiscal strategy, which overall signalled a mild tightening from the previous Government’s strategy. For the full details, we’ll have to wait until the May 30 Budget. 


22 March 2024

The Q4 GDP release was a touch weaker than expected, but while there were a few overs and unders compared to our forecast, they certainly weren’t of a game-changing magnitude. In fact, a lot of the miss looks more like a timing story than a meaningful change in underlying economic conditions. Our updated outlook sees economic growth remain sub-par for a while yet. In calendar year terms, annual average growth came in at just 0.6% in 2023. Our forecast has this anaemic pace persisting over 2024 (+0.5%), before gradually accelerating in 2025 (1.5%) towards trend (2.5%) in 2026.

Meanwhile, the annual current account deficit narrowed 0.5%pts to 6.9% of GDP in Q4, narrower than our forecast of 7.1% of GDP, helped by historic revisions. While New Zealand’s external position is improving, it's still too far out of balance to call sustainable. Progress is expected to continue (we see narrowing to around 4.5% by mid-2026), but in the meantime, the economy will remain vulnerable to a wide range of possible shocks that could keep us in unsustainable territory for longer. Fiscal consolidation and restrictive monetary conditions still have a role to play in getting the economy back on to a more sustainable path.

Next week’s highlight will be the Government’s Budget Policy Statement. This will provide a signal on the Government’s proposed operating and capital allowances (for Budget 24), and the new Government’s fiscal strategy. The latter will give us a feel for the risks around fiscal policy going forward. We’re not expecting an update to bond issuance guidance nor to the fiscal outlook. We’re also not expecting the Government to back away from promised tax cuts, so in the face of a deteriorating economic outlook the Government may need to cut spending by more or let the forecast return to surplus get pushed out another year. But for a full update on all this, we’ll have to wait for May’s Budget.


15 March 2024

February’s Selected Price Indexes (SPI), despite some overs and unders, were overall in line with our expectation, with the balance of risks around our Q1 CPI forecast of 0.6% q/q (4.0% y/y) unchanged. Two of the big surprises were much stronger domestic airfares, and overseas accommodation costs, the latter likely reflecting Taylor Swift’s concerts across the ditch. The SPI are volatile month-to-month, and extracting signal from noise in these data has proven challenging. That said, it does strengthen our expectation that Q1 CPI inflation will surprise the RBNZ to the upside.

February’s REINZ housing data was directionless, with house prices eking out a 0.2% m/m gain after January’s 0.9% lift. We don’t see any implications for our housing market outlook from these data, and nor, we expect, will the RBNZ. We continue to expect the housing market will remain sluggish across the first half of the year but there are certainly a lot of moving parts.

Also out this week, net migration inflows dropped to 2,870 in January, as a surge in departures outweighed still very strong arrivals. However, December inflows were revised up over 3k. Short-term visitor arrivals (largely tourists) remain steady at about 80% of their pre-COVID level, with a muted recovery in visitors from China weighing. All up, while net migration and tourism are supporting economic activity, that is being offset by weak domestic demand, which next week’s GDP data expected is expected to confirm, particularly in per capita terms. We’ve pencilled in a 0.1% q/q lift in headline GDP, with the services sector expected to just keep growth positive.


8 March 2024

The Q4 goods terms of trade dropped like a stone in Q4 (-7.8% q/q), with ex-fuel import prices up 1.1%, suggesting there may be a little more global inflationary pressure in the pipeline than the RBNZ was anticipating. Meanwhile, trade volumes paint a very weak picture for domestic demand (imports were down 7% q/q), which alongside a 2.6% lift in exports suggests Q4 expenditure GDP will see a strong positive contribution from net exports – albeit one that’s likely to be at least partially offset by changes in inventories.

Other Q4 GDP partials have been soft. Building work put in place fell 0.1% q/q, and manufacturing volumes fell 0.6% q/q. Excluding food and petrol, manufacturing is very weak. Our GDP Preview will be published next week. 

Next week also brings the February Selected Price Indexes. We’ve pencilled in a 0.1% m/m fall in food prices and a 0.4% m/m increase in rents. Fuel prices rose last month, with MBIE’s weekly fuel price monitoring suggesting a rise of around 5% m/m. We’ve pencilled in further modest falls in airfares after January’s sharp declines. Given the volatility in this series, there is a large range of possible outcomes in both directions.


1 March 2024

The RBNZ left the Official Cash Rate (OCR) unchanged at its February meeting. We had anticipated a hike, and failing that, for the RBNZ to up the ante on hikes with a higher forecast OCR peak. But that was not the case. In fact, the RBNZ revised down its forecast OCR peak by 9bp to 5.60%. 

The RBNZ’s comfort that “risks to the outlook for inflation have become more balanced since the November 2023 Statement” clearly increase the threshold for the evidence required to recommence tightening, and accordingly we are no longer expecting hikes. That said, we continue to see OCR risks tilted to the upside and have pushed out the timing of easing to mid-2025, and a more gradual easing cycle is now expected.


23 February 2024

Household inflation expectations data this week were in the ‘concerning’ bucket for the RBNZ. Households now believe that inflation in five years’ time will still be outside the RBNZ’s 1-3% target band at 3.6%, above their well-anchored 2.1% expectations in last quarter’s survey.

We expect the RBNZ to hike the OCR to 5.75% next week, and to publish an OCR track that gives a decent hat-tip to the possibility of a follow-up hike in April (with a peak of perhaps 5.85%).

The OCR isn’t anywhere close to its 2008 peak (8.25%), unlike policy rates in the US, the UK, or the euro area. And that’s even though non-tradable inflation is still more than a percent higher than where it peaked in that business cycle, and household debt relative to income is lower than it peaked in 2008 (and falling). Even with our two extra hikes we forecast the household debt servicing burden will peak around 11% of income, compared to a peak of over 15% in 2008.


16 February 2024

This week brought an update on inflation in the form of Stats NZ’s January selected price indexes. Broadly, the release was weaker than we had anticipated and suggests downside risk to our Q1 CPI forecast of 0.7% q/q (RBNZ: 0.6% q/q). But downside risk stems from the tradables side of the basket. 

The RBNZ’s Q1 Survey of Expectations showed progress. Importantly, 5yr and 10yr ahead expectations both eased back toward 2% after a concerning tick up in Q4. However, survey respondents continue to expect a more gradual return of inflation to target than the RBNZ’s own forecasts.

We’ve updated our labour market forecasts. The relatively resilient labour market picture presented in the Q4 data has caused us to reassess the near-term outlook, with a more gradual rise in the unemployment rate over 2024 expected. Our medium-term outlook remains unchanged: the labour market continues to loosen, largely driven by supply-side expansion, with the unemployment rate now expected to rise to a peak of 5.5% in 2025.


9 February 2024

We are now forecasting 25bp hikes in both February and April, taking the OCR to 6%. Inflation is looking sticky and we think the recent series of small, but meaningful upside surprises will be enough to push the RBNZ into taking further action, given how impatient the Committee sounded in November.

The Q4 labour market data came in stronger than we or the RBNZ were anticipating. The unemployment rate rose 0.1%pt to 4.0%, below our forecast of 4.3% and the RBNZ’s forecast of 4.2%.

The RBNZ warned in November that “If inflation pressures were to be stronger than anticipated, the OCR would likely need to increase further.” We don't think the RBNZ Committee will feel confident that they've done enough to meet their inflation mandate. The buck stops there.


2 February 2024

The January ANZ Business Outlook survey was mixed. Forward-looking activity indicators were little changed (with the exception of a sharp fall in expected residential building activity, but it’s volatile). On the inflation side, inflation expectations eased by 0.3%pts, but cost and price expectations are still holding up, including for retailers.

ANZ-Roy Morgan Consumer Confidence rose 1 point in January to 93.6, with perceptions of current conditions lifting 4 points, but confidence about the future falling 3 points. The wide gap between the current and forward-looking questions in the survey is starting to close. It’s early days, but such a pattern is typical as an economy recovers after a recession.

The Q4 labour market statistics are released next Wednesday, the last major piece of data before the February MPS. We’re anticipating that the labour market remained on a loosening trajectory in Q4, with the unemployment rate rising from 3.9% to 4.3%, a touch above the RBNZ’s November forecast of 4.2%.


26 January 2024

Annual CPI inflation decelerated from 5.6% to 4.7% y/y in Q4, in line with our forecast, but non-tradables inflation came in at 5.9% y/y, above our and the RBNZ’s forecast of 5.7% y/y. If seasonally adjusted headline inflation were to continue at its current rate over the next four quarters, inflation would be back in the RBNZ’s 1-3% band by year end – just, at 2.9%. 

The recessionary economy should take the remaining heat out of domestic inflation. In our updated forecasts we have revised down medium-term non-tradables to reflect the weakness in economic activity seen last year. We expect annual headline inflation to be back within the RBNZ’s 1-3% target band by Q3, putting the RBNZ in a position to cut the OCR from August.

In other news this week, the RBNZ proposed introducing debt-to-income (DTI) limits from the second half of this year. The accompanying slight easing in LVR restrictions may provide modest support to house prices, given the DTI limits are unlikely to be binding for some time.


19 January 2024

We now expect the RBNZ to deliver a steady sequence of 25bp OCR cuts starting in August, taking the OCR to 3.5% over 12 months. Over the next six months, a strong supply recovery, previous weakness in economic activity and a deteriorating labour market should result in rapid disinflation for domestically driven CPI components.

The RBNZ’s February Statement is still a long way away, but on 30 January Chief Economist Paul Conway will deliver a speech that will include “brief comments on domestic data developments” since the hawkish November MPS. The market is divided about what the message might be. Some seem to believe it will be a mea culpa smoothing the path to a much more dovish February MPS. We don't think that is at all likely.

Next Wednesday brings the release of the Q4 CPI data. We’re expecting some good news, with annual headline inflation expected to decelerate sharply from 5.6% to 4.7% y/y (0.6% q/q), below the RBNZ’s November forecast of 5.0% y/y (0.8% q/q). But all of the downside surprise to the RBNZ’s forecast is driven by weaker tradables inflation. We expect the all-important non-tradables inflation measure to print in line with the Reserve Bank’s forecast of 5.7% y/y, down from 6.3% y/y in Q3.


12 January 2024

2024 will bring winners and losers as the big forces buffeting the economy (monetary, fiscal, global and demographic) play out. We see the unemployment rate continuing to rise. While it may so far be a fairly soft landing in GDP terms, the per capita story is bruising.

The RBNZ won’t be able to let the economy off its short leash until inflation is looking more convincingly beaten than it is now. Progress thus far has been slower than they might’ve liked, but inch by inch the RBNZ is winning the war on inflation.

We are expecting more evidence of cooling activity, easing labour shortages and declining inflationary pressures in next week’s QSBO. The big story will likely be whether these indicators are falling quickly enough for the RBNZ to be comfortable endorsing OCR cuts this year.