Economic Note

Monthly Filled Jobs – February: Too early to expect a labour market recovery

28 Mar 2025

• Little change in February hiring, as expected, with January gains revised lower and with hiring levels still well below mid-2024 peaks
• Employment conditions in the goods sector remain dire, with continued job shedding
• Forward indicators remain mixed, with hiring expected to remain patchy over the first half of 2025. Our hope is that the tentative economic recovery gains momentum, with hiring to follow thereafter

Q4 2024 GDP Review: A sigh of relief, but we’re not out of the woods

20 Mar 2025

• New Zealand economic activity expanded 0.7% in Q4 2024, more than market, ASB and RBNZ expectations.
• The release was characterised by strength in services more directly related to discretionary spending. However, the growth driver was not the kiwi consumer, thank the tourists.
• We have revised our 2025 economic outlook upwards but are less convinced the economy can maintain Q4 momentum given the broader global headwinds. We will provide our complete forecast in our upcoming Quarterly Economic Forecast.

REINZ Housing data February 2025: Early sign of market movements

17 Mar 2025

• House prices increased in February, marking the highest monthly gain in the last 12 months (seasonally adjusted).
• House sales edged up for the first time in three months, while new listings and inventory continued to surge
• The February data present an overall more positive picture as we progress further into 2025. Given the mixture of persistent headwinds and emerging signs of improvement, we anticipate increased market activity in the coming months. However, we maintain our view that the market recovery will be gradual rather than a swift turnaround

Selected Price Indexes February: Moving in the right direction

14 Mar 2025

• Overall monthly prices fell 0.5% in February, partly reversing the 1.1% jump in January, with annual inflation easing to 1.4%
• We expect a lower mid-2025 peak in annual CPI inflation than the RBNZ, although more twists and turns are to be expected given the volatile and uncertain global outlook
• The balance of risks is tilted towards the RBNZ delivering more OCR cuts than the 50bps that we currently expect

NZ Migration and Tourism January 2025: Slowing, but from a higher base with rising tourist inflows

13 Mar 2025

• Annual net permanent and long-term migration inflows fell to 32,500 persons in the January 2025 year, continuing the declining annual trajectory, albeit from a higher base
• Inbound tourism numbers have continued to climb, hitting 5-year highs to be just 14% below pre-COVID peaks on an annual basis
• Lower annual net migration and low (but improving) tourism arrivals weaken key legs of economic support and underline the need for further OCR cuts

Q4 2024 GDP Preview: Limping into recovery

13 Mar 2025

• We expect the economy grew 0.3% q/q in the December 2024 quarter, in line with RBNZ expectations
• The economy is expected to remain on the expansion path, but we view the pace of underlying economic momentum as being modest in the first half of 2025
• We still expect 25bp OCR cuts in April and May by the RBNZ but acknowledge the risk of the OCR ending the year below 3.25% as the RBNZ switches from the policy brake to the accelerator to support the New Zealand economy

Electronic Card Transactions February 2025: Card spending remains flat

12 Mar 2025

• Overall card spending remained flat in February for the second consecutive month
• Retail and core spending recovered slightly after a sizeable decline in January
• We believe that a recovery in consumer spending is on the horizon, although this is likely to be more gradual than rapid.  Further OCR cuts look to be needed to bolster consumer demand

Building Work Put in Place – 2024 Q4: Stuck in a rut

06 Mar 2025

• Building Work Put in Place (WPIP) declined 4.4% in Q4, with falls in both residential (-4.9%) and non-residential volumes (-3.1%). The result was weaker than our expectation of a 2% contraction and points to yet another contraction for construction GDP in the December 2024 quarter
• Our view remains that the overall economy expanded in Q4, but some sectors will still be doing it tough, including construction
• We do expect lower interest rates and support an eventual turnaround stabilisation in the construction sector in the second half of 2025

Monthly Filled jobs – January: Good start to hiring in 2025 but not for everyone

28 Feb 2025

• Strong start to the year for hiring for 2025, albeit from a low base
• The services sector leads jog gains, likely bolstered by the prospect of continued interest rate relief. Employment conditions in the goods sector remain dire
• We expect hiring to remain patchy over the first half of 2025 before concertedly strengthening thereafter. Further OCR cuts are still needed to avoid labour market scarring

Q4 2024 Retail Trade Review: A welcome end for 2024

24 Feb 2025

• Retail volumes showed a welcome rebound in Q4, but annual growth was modest at 0.3%, indicating that consumers remain cautious about spending.  The recovery was widespread across all regions and several sectors
• Retail activity is expected to continue its gradual recovery in Q1 2025, given some persistent headwinds facing the sector
• Looking ahead to 2025, the retail sector's recovery is expected to continue gradually, with a more pronounced improvement in the second half of the year, driven by the impact of falling interest rates

REINZ Housing data January 2025: No movement just yet

19 Feb 2025

• House prices increased marginally in January, up for the third consecutive month (seasonally adjusted)
• House sales continued to decline, while new listings and inventory levels resurged in January
• As we progress into 2025, the housing market remains relatively stagnant despite significant reductions in mortgage interest rates.  Our view remains a gradual recovery in house prices over 2025, with more noticeable improvements expected in the second half of 2025

Review of RBNZ February Monetary Policy Statement: RBNZ confident to keep cutting – at a slower pace

19 Feb 2025

• The RBNZ cut the OCR the expected 50bp and flagged it had “scope” for further cuts
• The RBNZ’s confidence in keeping inflation contained over the medium term was evident in the Statement
• Two 25bp OCR cuts (in April and May) remain highly likely, with risks tilted to a further cut

NZ Migration and Tourism December 2024: Net annual migration inflows hit 2-year low

17 Feb 2025

• Despite the stronger December month, annual net PLT immigration inflows fall to 27k, a two-year low. Slowing PLT arrivals and climbing PLT departures remained evident
• The rise in the visitor levy does not look to have adversely impacted inbound tourism numbers, which are recovering but are still 15% below pre-COVID peaks on an annual basis
• Lower annual net migration and low (but improving) tourism arrivals are consistent with the further paring back of monetary policy restraint.  We expect 100bps of OCR cuts over 2025, but the economic outlook and balance of risks is highly fluid

Selected Price Indexes January 2025: Awkward timing

14 Feb 2025

• Overall monthly prices rose 1.1% in January, with annual inflation hitting 2.5%, its highest since mid-2024.  It is still early days, but the figures suggest that the lower NZD is reigniting pricing pressures from a number of pockets
• Annual inflation on the monthly measures has pushed above 2%, pointing to clear upside risk to headline inflation outturns in early 2025.  This is likely to significantly complicate the communication challenges facing the RBNZ
• The inflation outlook for 2025 remains incredibility uncertain.  The timing and magnitude of OCR moves hinges on the outlook and developments over 2025

Preview of RBNZ February Monetary Policy Review: One last 50 – this time?

13 Feb 2025

• We expect the RBNZ will deliver its fourth 50bp cut in a row on February 19, probably the last big cut
• The RBNZ’s view on medium-term inflation pressures may not have changed that much, despite an eventful few months and a slightly firmer short-term inflation outlook
• Our base case remains two further 25bp cuts in April and May and a 3.25% OCR endpoint, but events will more heavily determine the pace and level of the terminal OCR

Electronic Card Transactions January 2025: Back to the ground

13 Feb 2025

• Overall card spending remained flat in January, following sizeable increases in December
• Retail spending declined after solid growth during the festive month
• After a cautious start, we expect retail spending momentum to pick up from the second half of this year. This should not prevent further OCR cuts in the first half of 2025

RBNZ Survey of Expectations 2025 Q1: Anchored inflation expectations should lock in a 50bp OCR cut next week

13 Feb 2025

• Inflation expectations are effectively at 2%, with welcome falls beyond the 1-year ahead horizon and a modest tick-up in short-term inflation expectations
• We still expect a 50bp OCR cut next week and a 3.25% OCR by mid-2025. Respondents seem to be increasingly gravitating towards a 3.25% OCR endpoint, in line with our core view
• Trends in inflation expectations will be crucial for assessing future monetary policy decisions, with RBNZ moves to bolster their inflation expectations arsenal both timely and welcome

Q4 2024 Labour Market Data Review: Softening, as expected

05 Feb 2025

• Q4 labour market figures weaken in line with market expectations, with employment falling and the unemployment rate hitting 4-year highs
• Labour cost growth cools to 3-year lows and looks to be moving in a direction consistent with inflation settling in the 1-3% RBNZ target range
• The Q4 labour market figures and the softening labour market prognosis should prompt the continued frontloading of monetary policy easing and we expect a 50bp OCR cut in February and a 3.25% OCR by mid-2025. The OCR outlook for 2025 is fluid with both upside and downside risks

Q4 2024 Labour Market Data Preview: Following the economy down

30 Jan 2025

• December 2024 quarter labour market figures should show the effects of a protracted activity slowdown, with falling hiring and an unemployment rate pushing above 5%
• Labour cost growth is expected to continue to recede given increased competition for jobs and less compensation for inflation.  We see further falls in wage pressures ahead
• Soft labour market data figures should continue to encourage further swift monetary policy easing.  We expect a 50bp cut in February and 3.25% OCR by mid-2025, with 2025 OCR moves beyond then conditional on the uncertain economic outlook

NZ Migration and Tourism November 2024: Deflating

23 Jan 2025

• The air continues to slowly deflate from the net migration balloon, with net PLT immigration inflows down to 30k annually, their lowest level since late 2022.  Slowing PLT arrivals and climbing PLT departures remained evident
• The rise in the visitor levy does not look to have adversely impacted inbound tourism numbers, which look to have plateaued about 16% annually below pre-COVID peaks
• Lower net migration and a plateauing in tourism arrivals is consistent with the further paring back of monetary policy restraint.  Our view is that the RBNZ will deliver another 50bp cut in February 2025

2024 Q4 CPI Review: Close to 2%, but set to edge higher from here

22 Jan 2025

• Consumer prices rose 0.5% in Q4, with annual inflation steady at 2.2%
• The welcome moderation in non-tradable inflation was evident but we are past peak deflation for tradable goods and services, and this should see annual CPI inflation nudge higher over 2025
• A 50bp cut in February and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR moves hinges on how events pan out

REINZ Housing data December 2024: A soft close for 2024

22 Jan 2025

• House prices lifted modestly in December, for the second consecutive month
• House sales declined substantially in December, while new listings and inventory remained lower
• Overall, house prices were down over 2024 due to restrictive monetary policy settings and numerous headwinds facing the market.  However, with mortgage interest rates moving lower, the gradual recovery of house prices is expected to be more pronounced in 2025

Core Consumer Prices 2024 Q4: Core inflation cools

22 Jan 2025

• Q4 core inflation cools for the RBNZ aggregate, tradable and non-tradable inflation measures, with modest downward historical revisions
• The cooling trajectory of core inflation increases our confidence CPI inflation will remain well below 3% over 2025, enabling further OCR cuts
• A 50bp OCR cut in February looks highly likely (3.75% OCR), and we expect a further 50bps of cuts in Q2 (3.25% OCR). However, there is a lot that could happen this year, with the impact of external influences on NZ inflation particularly uncertain

Electronic Card Transactions December 2024: A welcome rebound

21 Jan 2025

• Overall card spending stages a welcome lift in December, after being muted in November
• The climb is from weak levels, with spending little changed on a year ago
• We believe conditions are in place that should see retail recover over 2025, although it will not be a swift turnaround

Q4 CPI Preview: At around 2%

17 Jan 2025

• We expect a 0.4% quarterly increase in Q4 headline CPI, with annual CPI inflation falling to 2.1%, broadly in line with the RBNZ’s November MPS pick.  
• The moderation in non-tradable inflation rates is expected to continue, but higher tradable prices over 2025 will likely push aggregate CPI inflation higher at the margin by year end.
• A 50bp cut in February and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR moves hinges on how events pan out.

We expect the general cooling in inflationary pressures to continue when Stats NZ releases Q4 data on 22 January.  Our Q4 CPI pick is for a 0.4% quarterly increase in headline CPI, with annual CPI inflation falling to 2.1%, its lowest since early 2021.  Our pick is broadly in line with the November MPS expectations.  Risks are broadly balanced. The moderation in CPI inflation is driven by cooling non-tradable inflation.  This predominantly reflects slowing increases in housing and services inflation that is the consequence of a pronounced period of softening economic conditions and growing spare capacity.  Core inflation measures are expected to ease towards the upperpart of the 1-3% inflation target band.  The deflationary impulse provided by lower tradable prices looks to have ceased, with Q4 prices are expected to remain flat, following four successive quarters of decline.  Reflecting a combination of influences, modest increases are expected for tradable prices over 2025.  This should push overall inflation slightly higher by the end of 2025. With inflation effectively parked within the inflation target zone, the RBNZ is well positioned to continue to promptly normalise OCR settings.  We expect a 50bp February cut and a 3.25% OCR by mid-2025.  Our base case is that the OCR will not need to move below circa 3.25% neutral levels in 2025, but the inflation outlook remains highly uncertain and is conditional on several factors. 

QSBO - 2024 Q4: Modest improvements from dire levels

14 Jan 2025

• Q4 QSBO results showed improvement from dire earlier 2024 readings, but still suggest that the economy continues to struggle despite the prospect of interest rate relief.
• Pricing indicators tick and the margin of spare capacity in the labour market points to further drops in headline and core inflation below the inflation target midpoint.
• A swift pace of OCR cuts looks necessary, but the question is that how low the OCR will need to go over 2025.

Q3 2024 GDP Review: A troubled time

19 Dec 2024

• NZ economic activity fell a large 1.0% qoq in Q3 2024, more than we had anticipated.  Q2 growth was revised lower to a 1.1% qoq fall (from -0.2%)
• The key driver of this quarter’s outturn was weakness in the goods-producing sector, but services activity also declined
• The extent of the contraction in GDP in Q2 and Q3 points to more excess capacity in the economy and is consistent with further OCR cuts from the RBNZ

REINZ Housing data November 2024: Still flat

17 Dec 2024

• House prices lifted modestly over the month, after declining last month
• House sales declined slightly in November, with an increase in the number of houses for sale despite lower new listings and fewer properties on the market
• We expect house prices to flatline over 2024 given numerous headwinds, but with mortgage interest rates moving lower, the recovery will be more evident in 2025

2024 NZ Half Year Economic and Fiscal Update Review: Higher deficits and higher debt

17 Dec 2024

• The Treasury Half Year update presented a bleaker economic and fiscal picture relative to the Budget 2024 forecasts, with no OBEGAL surpluses over the forecast horizon
• The profile for Crown debt was revised up, as was the NZ Government bond programme, with an additional $20bn of gross issuance over the 2025/28 period, more than we had expected
• We don’t think that the HYEFU will deter the RBNZ from continuing to pare back monetary easing, including delivering a 50bp OCR cut in February 2025.  However, fiscal consolidation is imperative to rebuilding fiscal buffers and to provide the RBNZ with more leeway to further lower the OCR

2025 Watchlist: What to look out for in 2025

13 Dec 2024

• 2024 has proved to be a hard slog for many
• Signs for 2025 are looking brighter and we are cautiously optimistic
• Here we set out 5 key things to watch over 2025

Q3 2024 GDP Preview: The final fall

13 Dec 2024

• We anticipate a 0.4% qoq contraction in Q3 GDP, but the annual benchmarking means uncertainty is high
• The per-capita numbers will be weaker still, reinforcing that the last two years has been tough for kiwis
• There is some good news however, in that we expect economic fortunes to begin to turn around from Q4 2024

NZ Migration and Tourism October 2024: Slowing but tentative signs of stabilisation

13 Dec 2024

• Annual net immigration inflows fell below 40k, to their lowest level since late 2022.  However, there are tentative signs that net inflows are stabilising
• The rise in the visitor levy does not look to have adversely impacted inbound tourism numbers that actually climbed in October but remain well below pre-COVID peaks
• Lower net migration and a plateauing in tourism arrivals is consistent with the further paring back of monetary policy restraint.  Our view is that the RBNZ will deliver another 50bp cut in February 2025

Electronic Card Transactions November 2024: Still hunkering down

12 Dec 2024

• Overall card spending declined slightly in November, after two consecutive months of gains
• Retail spending volumes look to be muted after a modest lift in October
• The card spending data this month turned out to be disappointing, regardless of several supporting factors emerging.  It reflects the weak demand, and we continue to expect further monetary policy easing in 2025

2024 NZ Half Year Economic and Fiscal Update Preview: Delay in return to surplus and higher debt

11 Dec 2024

• We expect the Treasury Half Year update to unveil a softer economic and fiscal outlook relative to the Budget 2024 forecasts, with a later return to OBEGAL surpluses and a higher profile for Crown debt
• The NZ Government bond programme will likely get revised higher.  The large funding task facing the NZDM suggests it may be worthwhile for the RBNZ to consider scaling back quantitative tightening
• Fiscal consolidation is imperative to rebuilding fiscal buffers and to provide the RBNZ with the necessary leeway to continue to normalise OCR settings

Review of RBNZ November Monetary Policy Review: Doors wide open

27 Nov 2024

• The RBNZ cut the OCR by 50bp to 4.25% as widely anticipated – and left its options fully open for February
• The OCR track suggests a high chance of a 50bp move, which will have dampened market reaction today
• From here we expect the RBNZ will slow the pace of easing to 25bp moves in 2025 – dependent on events

IoD Director Sentiment Survey 2024: Insights from the New Zealand Director Community

26 Nov 2024

• Directors have swung to be optimistic about the economic environment, and are even more upbeat about their organisations’ expected operating performance
• Cost of living is still seen as the number one impediment to national performance though it is receding, while global uncertainties edged into second spot
• Customer demand became the single-biggest impediment for organisations, with policy/political uncertainty also up and just behind demand

Q3 2024 Retail Trade Review: Retail spending remains subdued

25 Nov 2024

• Retail volumes remained flat in Q3 but saw an annual decline of 2.5%, indicating that consumers are still cautious about spending.  The decrease was widespread across sectors and regions, with only a few areas showing growth
• Retail activity is expected to remain soft in Q4, given numerous headwinds facing consumer spending, especially the rising unemployment rate, easing wage growth, and slowing population growth
• Looking ahead to 2025, the retail sector's recovery is expected to become more evident, driven by the impact of falling interest rates

Preview of RBNZ November Monetary Policy Review: One last 50?

21 Nov 2024

• We expect the RBNZ will deliver another 50bp cut on November 27 as the path of ‘least regret’
• That gets the OCR down to 4.25%, much closer to neutral levels, ahead of the RBNZ’s long summer policy holiday
• The RBNZ is also likely to drop hints that the pace of adjustment will slow in 2025 and be much more event-dependent

REINZ Housing data October 2024: Still subdued but signs of optimism emerging

14 Nov 2024

• House sales lifted modestly in October at 1% mom, on a seasonally adjusted basis
• House prices dropped slightly, after the gain last month
• New listings and total inventory levels continue to rise, while houses are selling faster

NZ Migration and Tourism September 2024: Sub 50k annual net migration into NZ and falling

13 Nov 2024

• Annual net immigration inflows fell to the lowest level since January 2023.  We continue to see the risk of net PLT outflows in 2025
• Annual tourism arrivals remain well below pre-COVID peaks and show few signs of pushing higher
• Falling net migration and a plateauing in tourism arrivals is consistent with our view that the RBNZ will deliver another 50bp cut in November

Electronic Cards Transactions October 2024: Weak demand remains

12 Nov 2024

• Overall card spending lifted slightly in October, with support from lower interest rates and tax cuts
• Retail spending volumes increased after being muted in September
• The marginal gain in card spending in October still suggests weak demand and we continue to expect a 50bp OCR cut in November and a 3.25% OCR endpoint

Q3 2024 Labour Market Data Review: Softening despite more modest unemployment rate lift

06 Nov 2024

• Q3 labour market figures weaken with employment falling and sharply falling labour force participation preventing a larger rise in the unemployment rate
• Labour cost growth cools by more than expected, increasing the likelihood of inflation settling in the 1-3% RBNZ target range
• The Q3 labour market figures and the softening labour market prognosis should prompt the continued frontloading of monetary policy easing and we expect a 50bp OCR cut in November. OCR moves next year remain highly conditional on the economic outlook

Q3 2024 Labour Market Data Preview: Protracted activity slowdown hits the labour market

31 Oct 2024

• September 2024 quarter labour market figures are expected to show the impacts of a protracted activity slowdown, with falling hiring, an unemployment rate touching 4-year highs, and with cooling labour cost growth
• Few signs of imminent economic recovery are evident, with the demand for workers expected to remain weak heading into 2025.  The unemployment rate is set to approach 6% by mid-2025, until a modest labour market recovery unfolds.  Labour cost growth should continue to ease
• Weaker Q3 labour market data figures should encourage the continued frontloading of monetary policy easing.  We expect a 50bp cut in November, with 2025 OCR moves highly conditional on the economic outlook

2024 Q3 CPI Review: Inflation back near 2% already

16 Oct 2024

• Consumer prices rise 0.6% in Q3, with annual inflation down to 2.2%, its lowest since early 2021
• There were a multitude of policy and cost-induced changes that muddied the figures, although underlying inflation pressures look to be cooling and effectively at around 2%
• We expect a 50bp cut in November (4.25%), and a 3.25% OCR endpoint, but risks are tilted to more front-loaded policy easing

REINZ Housing data September 2024: No significant momentum shift

15 Oct 2024

• House sales fell for a second consecutive month in September
• Meanwhile, house prices lifted slightly, the first time in four months
• New listings and total inventory levels continue to creep up and houses are taking longer to sell

Electronic Cards Transactions September 2024: Subdued retail spending keeps door open to large OCR cuts

14 Oct 2024

• Card spending remained subdued in September despite income tax cuts and the prospect of lower interest rates
• Retail spending volumes are likely to have contracted further in Q3, as the consumer-led downturn continues
• We expect a 50bp OCR cut in November and a 3.25% OCR endpoint, but the trajectory of the OCR is heavily dependent on how household spending fares

NZ Migration and Tourism - August 2024: Net migration rapidly slowing

11 Oct 2024

• Annual net immigration inflows fell to the lowest level since January 2023.  There is a real risk inflows fall faster than earlier envisaged and that we see net PLT outflows in 2025
• Annual tourism arrivals remain well below pre-COVID peaks and shows few signs of pushing higher
• Falling net migration and a plateauing in tourism arrivals is consistent with our view that the OCR needs to return towards neutral relatively quickly.  Another 50bp cut in November remains our base case

2024 Q3 CPI Preview: Approaching 2%

11 Oct 2024

• We expect a 0.7% quarterly increase in Q3 headline CPI, with annual CPI inflation falling to 2.2%, slightly below the August MPS pick
• Underlying inflation rates are likely to be lower than this and there is the risk of inflation settling well below 2% in the absence of further cuts to the OCR
• A 50bp cut in November and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR cuts hinges on how quickly the RBNZ would like to normalise settings

Review of RBNZ October Monetary Policy Review: I feel a need, a need for (a little bit of) speed

09 Oct 2024

• The RBNZ cut the OCR by 50bp, as had come to be largely anticipated by most forecasters
• An easing bias was maintained, but forward hints were non-committal, and the tone of data will heavily influence the November decision
• We continue to expect another 50bp cut in November, with smaller individual moves in 2025

Preview of RBNZ October Monetary Policy Review: Mind the gap – and go 50

02 Oct 2024

• We expect the RBNZ to cut the OCR by 50bp at both the October and November meetings
• The OCR is too far above a neutral level, with the QSBO survey flagging the risk of weak inflation
• Timings of 50bp moves are not a done deal, but we expect 125bp of cuts by February 2025 and a 4% OCR

Quarterly Survey of Business Opinion 2024 Q3: Struggling and in need of interest rate relief

01 Oct 2024

• Q3 QSBO results showed modest signs of improvement from the dire Q2 readings, but still suggest that the economy is struggling
• Pricing indicators have dropped sharply with growing spare capacity in the labour market pointing to further drops in headline and core inflation below the inflation target midpoint
• Further OCR cuts are desperately needed, but the question is how quickly the RBNZ needs to reduce monetary policy restraint

Q2 2024 GDP Review: Economy stumbles in Q2

19 Sep 2024

• NZ economic activity fell 0.2% qoq in Q2 2024, roughly in line with our expectations
• The key driver of this quarter’s outturn was a fall in the primary sector, but there were signs of weakness throughout the data
• We don’t expect the data to change the outlook for the RBNZ, and we expect another 50bp of OCR cuts before the year is out

REINZ Housing data – August 2024: Remaining subdued regardless of the OCR cut

13 Sep 2024

• House sales in August declined, after a rebound in July
• House prices continued to fall, for the fourth consecutive month
• New listings and total inventory levels continue to creep up

NZ Monthly Prices - August: Cooling inflation trajectory continues

12 Sep 2024

• Overall monthly prices rose slightly in August, with annual inflation falling to 1.1%, its lowest since 2016
• This affirms our confidence that annual CPI inflation will fall below 2.5% in Q3 2024
• We are also confident that conditions are in place that will deliver sub 3% CPI inflation on a sustained basis even with OCR cuts

Electronic Cards Transactions August 2024: No signs of a spending spree here

12 Sep 2024

• Overall electronic card spending remained subdued in August
• Retail spending increased for the first time in the last seven months, albeit at a modest rate
• The tax cuts in July and the first OCR cut in August appear to have had minimal impact on household spending.  This should give the RBNZ more confidence to further ease monetary policy

Q2 2024 GDP Preview: Soggy at best

12 Sep 2024

• We anticipate a 0.3% qoq contraction in Q2 GDP, marking the lowest level of GDP in two years
• The per-capita story is set to be even weaker, and already exceeds the GFC decline
• However, we expect we are near a turning point.  Less restrictive monetary policy will increasingly support economic growth as we head into 2025

NZ Migration and Tourism July 2024: Key supports eroding

11 Sep 2024

• Annual net immigration inflows fall to an early 2023 low, with the risk that net inflows fall faster than earlier envisaged and that net PLT outflows become more of the norm for 2025
• Annual tourism arrivals look to have plateaued well below pre-COVID peaks and shows few signs of pushing higher
• Less economic support from net migration and tourism point to further OCR cuts being needed

Q2 2024 Retail Trade Review: Retail retrenchment resumes

23 Aug 2024

• Retail volumes fall 1.2% in Q2, as consumers hunker down. There were generalised falls by sector and region, with only a few bright spots
• Retail activity is expected to remain soft heading into 2025, as NZ population growth cools, inbound tourist numbers plateau, with households expected to save a decent chunk of their income tax cuts
• The OCR looks set to continue to move lower, with the pace of rate cuts partly conditional on how household spending fares

REINZ Housing data – July 2024: Higher activity not translating into higher prices

20 Aug 2024

• House sales in July increased sharply, after a deep fall in June
• House prices decreased slightly, and houses are taking longer to sell
• New listings and total inventory levels continue to creep up

Review of RBNZ August Monetary Policy Statement: Starting gun fired

14 Aug 2024

• The RBNZ cut the OCR by 25bps.  Market expectations were roughly divided about the outcome
• As flagged, the RBNZ slashed its growth forecasts, leading to a quicker decline of forecast inflation pressures
• The RBNZ has foreshadowed a substantial easing cycle: we expect steady 25bp cuts to around 3.25%

NZ Migration and Tourism June 2024: Easing economic support suggests the OCR needs to be cut

13 Aug 2024

• Net immigration inflows remain on a cooling trajectory, driven by cooling arrivals and rising departures
• We expect the pace of net inflows to continue to cool, with the support from past migration strength fading.  Annual tourism arrivals look to have plateaued well below pre-COVID peaks
• The erosion of key legs of economic support suggests that the OCR needs to be cut

RBNZ Survey of Expectations – 2024 Q3

08 Aug 2024

• Inflation expectations fall for all measures, with inflation expectations from the closely watched 2-year ahead measure down to 2.03%, its lowest since 2021 Q1
• Longer-term inflation expectations look to be anchored around 2%, suggesting a high degree of confidence that sub 3% inflation outcomes will be achieved and maintained
• Low inflation expectations reinforce the likelihood of an August MPS cut. We now expect a 25bp OCR cut next week

Preview of RBNZ August Monetary Policy Statement: Carpe diem

08 Aug 2024

• We think the RBNZ will cut the OCR by 25bps on August 14 – much earlier than the RBNZ would previously have contemplated
• It’s a close call: it depends heavily on the extent to which the RBNZ’s outlook has softened
• The messaging will be important: we expect the RBNZ to signal measured cuts and a data dependent approach to temper market exuberance

Q2 2024 Labour Market Data Review: Unemployment rate climbs and wage growth cools

07 Aug 2024

• Q2 labour market data printed on the stronger side of market expectations, but was in line with the RBNZ view, with the unemployment rate rising to a 3-year high
• Labour cost growth in the private sector proves to be higher than market expectations, but still falls to its lowest annual rate in 2 years, with the wage and distributional figures showing signs of cooling
• Despite the resilient result an August OCR cut is very much live. We expect a cut in October if not before

Q2 2024 Labour Market Data Preview: Following the economy down

31 Jul 2024

• June 2024 quarter labour market figures are expected to show further easing in labour market conditions, with the unemployment rate climbing to its highest level in more than 3 years and with cooling annual labour cost growth
• The demand for workers is expected to remain weak, with little if any growth in overall employment expected over the next 12 months and with the unemployment rate set to move above 5.5% by mid-2025. Labour cost growth should sharply cool
• The weaker labour market outlook should prompt OCR cuts before year end. We expect 25bp cuts in both October and November, but the tone of incoming data and other factors will impact what the RBNZ actually do

Consumers Price Index – 2024 Q2: Underlying price pressures rapidly cool

17 Jul 2024

• Q2 inflation surprises the RBNZ to the downside again, with annual CPI inflation down to 3.3%, its lowest since mid-2021.  Highly restrictive OCR settings are generating significant traction
• Non-tradable inflation has been slower to cool but this is partly reflective of cost driven influences that monetary policy should seek to look through.  Stripping out some of these cost increases suggests that annual CPI inflation is already well below 3% and is rapidly cooling
• Today’s data tilts the risks towards earlier and larger OCR cuts.  All remaining OCR decisions over 2024 are effectively ‘live’.  In our view a 25bp OCR cut in November looks to be the bare minimum of what the RBNZ will need to deliver over 2024

Core Consumer Prices – 2024 Q2: Core inflation cools and ASB changes its OCR view

17 Jul 2024

• Q2 core inflation cools for both overall and non-tradable inflation measures. Importantly, the sequence of data revisions is now downwards
• We have changed our OCR call and now expect 25bp cuts in both October and November 2024 (50bps in total)
• The timing and magnitude of OCR cuts remains heavily data dependent and will also hinge on whether the RBNZ feels confident that inflation will settle in the 1-3% inflation target range

REINZ Housing data – June 2024: It’s more than a winter chill

15 Jul 2024

• House sales in June fell sharply, 13% down compared to May, the weakest since April 2023 (seasonally adjusted)
• House prices decreased slightly, and houses are taking longer to sell
• New listings and total inventory levels continue to creep up

Electronic Cards Transactions June 2024: Bleak

12 Jul 2024

• Pronounced weakness in private demand remains very evident in June electronic card spending
• Retail spending is almost 5% below the nominal peak in April 2023 and is back to levels last seen in mid-2022
• In the absence of a post-tax change spending spree, we are confident that restrictive monetary policy has done its job and that the RBNZ will loosen policy from later in 2024

Monthly CPI data – June 2024: Inflation on cooling trajectory despite June lift

11 Jul 2024

• Our monthly add-up shows that consumer prices rose just 0.1% in June. This was slightly weaker than we had expected
• Underlying pricing pressures look extremely soft, with prices essentially flat in Q2
• Annual CPI inflation remains well on track to fall below 3% in the second half of 2024, and we are increasingly confident it will settle in the 1-3% inflation target range. We expect a 25bp OCR cut in November, but the softness of the pricing side data heightens the risk of RBNZ cuts coming sooner and being larger over 2024 than previously thought

2024 Q2 CPI Preview: Cooling as the economy weakens

11 Jul 2024

• We expect a 0.4% quarterly increase in headline CPI over Q2, with headline inflation falling to 3.3%, its lowest since early 2021.  Risks are tilted to the upside.  Data due on 17 July
• We are increasingly comfortable that sub 3% inflation will be achieved in the second half of 2024 and that conditions are in place that will sustain 1-3% inflation
• A 25bp OCR cut in November is our base case scenario, but the softness of the pricing side data heightens the risk of RBNZ cuts coming sooner and larger over 2024 than previously thought

NZ Migration and Tourism May 2024: Migration continues to weaken

10 Jul 2024

• May’s monthly net migration inflow for the month hit the lowest since the border was reopening
• We expect the net inflow to remain modest, driving down the annual net inflow rapidly
• Tourism arrivals continue to lift, albeit more gradually.  The Chinese market is recovering more rapidly

Review of RBNZ July Monetary Policy Review: RBNZ well on track for pre-Christmas cut

10 Jul 2024

• The RBNZ kept the OCR unchanged at 5.5%, as was universally expected
• There were plenty of early signs that the RBNZ is starting to eye up data for when it should cut the OCR
• We are confident the RBNZ will cut in 2024, in November by 25bp at the least if not earlier or bigger

Household Sector Outlook: Household reset underway and the role of the 3 drivers

04 Jul 2024

• The current difficulties being experienced by NZ households are largely a hangover from factors that inflated spending and the housing market during the COVID-era boom
• The remainder of 2024 looks to be challenging as employment prospects weaken
• There will be a silver lining to households as weaker inflation should result in interest rate relief to household borrowers. OCR cuts could come as soon as 2024

Preview of RBNZ July Monetary Policy Review: Let’s get it started

04 Jul 2024

• We have changed our OCR outlook – we expect the RBNZ to cut the OCR from November this year
• From 2021 through 2023 inflation pressures proved sticky, aided by a still-resilient labour market
• However, the cracks in households are starting to spread – inflation will be next

Quarterly Survey of Business Opinion Q2 2024: Moving in the right direction – OCR cuts by year end a distinct possibility

02 Jul 2024

• Q2 QSBO results suggest that the protracted downturn in NZ will continue for a while yet
• Pricing and cost pressures are easing, with increasing spare capacity particularly evident in the labour market
• Today’s results are hugely encouraging for the RBNZ. OCR cuts before year end remain a distinct possibility. Our OCR call is under review

What to make of higher shipping costs: High shipping costs unlikely to have as big an inflation impact

26 Jun 2024

• The run up in shipping costs have been swift – with a trebling in some rates over the last 12 months
• There are good reasons to expect a considerably more modest inflation impact in NZ in 2024 than during the COVID-19 shipping cost spike
• We still expect annual NZ CPI inflation to fall below 3% by year end. However, persistently high shipping costs provides some upside risk

Q1 2024 GDP Review: Still flat

20 Jun 2024

• NZ economic activity rose slightly in the March 2024 quarter, roughly in line with our expectations
• The key drivers of this quarter’s small rise were a lift in primary production, increases in some services components and the ‘unallocated’ component
• Strong population growth continues to mask just how weak the NZ economy has been over the last 18 or so months

REINZ Housing data – May 2024: Reversal of fortune

17 Jun 2024

• NZ house prices fell slightly in May, and house sales reversed the gains of recent months
• Stock for sale continues to edge up, with sales not keeping up with new market listings
• We expect prices to lift only marginally over 2024, and to gain traction once interest rates fall in 2025

Monthly CPI data – May 2024: Pricing pressures cooling

14 Jun 2024

• Our monthly add up shows that consumer prices fell 0.7% in May, with annual inflation trending lower
• Pricing pressures are cooling. Monetary policy is working
• Annual CPI inflation remains on track to fall below 3% before year end. This could provide scope for the RBNZ to deliver OCR cuts in 2024 providing that the circumstances warrant it

Electronic Cards Transactions May 2024: Weakness abounds

13 Jun 2024

• Card spending once again highlights that NZ consumers’ wallets are well and truly on the ice amid widespread headwinds
• We expect challenging conditions for the retail sector to prevail over much of 2024
• High interest rates are clearly weighing on consumer spending, but the RBNZ needs to see more evidence that this is flowing through into lower inflation before it considers cutting the OCR

NZ Migration and Tourism April 2024: Trending lower as kiwis leave the nest

12 Jun 2024

• Continued volatility in the monthly figures remain, but the pace of net migration inflows remains on a cooling trajectory
• Record numbers of kiwis depart as NZ loses its lustre.  This, combined with moderating arrivals of non-NZ citizens is expected to drive net migration inflows lower over time
• Annual tourism inflows into NZ modestly tick up, with the risk that the recovery may be running out of puff and reducing a key leg of support.  Nonetheless, the firmly on hold stance from the RBNZ remains prudent for now

Q1 2024 GDP Preview: Up but definitely not away

11 Jun 2024

• We expect the NZ economy rose 0.1% qoq in Q1, bringing an end to H2 2023’s ‘technical’ recession
• However, we don’t expect this to mark a change of fortunes for NZ, with more weakness likely while monetary policy settings are restrictive
• The per capita story will remain particularly weak, with Kiwis being left with an even smaller share of the economic pie

NZ Budget 2024 Review: More work to do

31 May 2024

• A weaker economic backdrop has translated into a softer fiscal outlook, with a delay in the return to OBEGAL surpluses until 2027/28 and a higher profile for Crown debt
• Budget 2024 contained a fiscal policy pivot towards tax relief that was balanced by cutbacks in operational spending. The tax cut package was only modestly scaled back from earlier proposals
• Fiscal policy settings do not appear to be as contractionary and front loaded as in the December 2023 update. This will not be greeted fondly by the RBNZ, which is still battling to restrain domestically-generated inflation pressure

NZ Budget 2024 Preview: The timing matters

24 May 2024

• A weaker economic outlook will mean that the first Budget of the new coalition government is expected to show a softer fiscal outlook, with a delay in the return to OBEGAL surpluses and a higher profile for Crown debt
• The tax cut package will be sold as being fiscally and economically neutral, with spending cutbacks broadly matching the tax cut package. This may not be the case
• The RBNZ has shown little tolerance for fiscal largesse and will be hoping that the Budget delivers a more front-loaded and larger contractionary impact. If not, OCR cuts could be pushed further back

Q1 2024 Retail Trade Review: Dead cat bounce?

23 May 2024

• Retail volumes rose in Q1, the first quarterly increase in sales volumes since Q4 2021.  Nevertheless, weak demand was still very evident when digging a little deeper
• The durables recession is ongoing, with spending across areas like furniture and hardware continuing to fall sharply.  Per capita retail activity is also continuing to decline as households limit spending
• Despite the headline lift, retail activity remains weak, and should help to bring inflation back to target in time.  However, the RBNZ proved yesterday that it requires much more concrete evidence that domestic inflation will fall sustainably before it entertains the idea of easing monetary policy.  It’s a 2025 story at this stage.

Review of RBNZ May Monetary Policy Statement: Keep calmish and carry on holding

22 May 2024

• The RBNZ kept the OCR at 5.5%, as widely expected, but was more wary about inflation risks
• The persistence of service-sector inflation has the RBNZ expecting inflation and the OCR will hold up for longer
• We continue to expect the RBNZ will remain on hold until early 2025, but the risks are tilted to a later start

NZ Productivity Update: Time for a Productivity Reset

16 May 2024

• NZ’s productivity growth has been on a declining trajectory since the late 1980’s/early 1990’s and this productivity performance has weakened since the COVID-19 outbreak
• Our research suggests that weak productivity performance is likely to be a factor behind NZ’s sustained high inflation
• We are hopeful that productivity will rebound, making the RBNZ’s job of delivering low inflation that much easier

Preview of RBNZ May Monetary Policy Statement: A year of holding steady

16 May 2024

• We expect the RBNZ to keep the OCR at 5.5% and continue signalling OCR cuts are some time off
• News since the April decision suggest some stickiness in inflation pressures, yet more subdued growth
• We continue to expect the RBNZ will cut the OCR in February 2025, later than market pricing implies

Electronic Cards Transactions April 2024 and Travel and Migration March 2024: Consumers hibernate as net immigration inflows cool

14 May 2024

• March migration figures continue to slow, with negative historical revisions confirming we are past the turning point, with further softening likely
• April card spending has remained subdued as consumers keep their wallets shut given mounting headwinds
• High interest rate settings are clearly working to crimp consumer spending, but the RBNZ will want to see more progress on reducing inflation before cutting the OCR

REINZ Housing data – April 2024: Sluggish

14 May 2024

• NZ house prices were flat in April, as the patchy performance since late 2023 continues
• Houses are taking longer to sell, with the median time taken extending to 43.7 days (seasonally adjusted)
• New listings and total inventory levels are creeping up.  We expect prices can eventually lift from current levels, albeit at a modest rate until interest rates fall

Monthly CPI data – April 2024: Sticky

13 May 2024

• Food prices rose in April, however annual food price inflation remains at close to 3-year lows. Many other prices also lifted over the month
• Our add-up of the monthly CPI series suggests price gains are too robust on a quarterly basis. The RBNZ will remain acutely aware of the risk that sticky prices halt the recent declining trend
• Inflation is much more contained than it was 12 months ago. However, continued evidence of stickiness in some areas means it’s much too soon to declare mission accomplished. OCR cuts are unlikely to be delivered until early 2025

Q1 2024 Labour Market Data Review: Easing labour market utilisation but labour cost growth sticky

01 May 2024

• Q1 labour market data was mixed with weakening signs from the Household Labour Force Survey in contrast to more resilient signs on hiring elsewhere.
• Labour cost growth was only slowly receding within the data and is stronger than would be consistent with sub 3% inflation being delivered. The distributional figures provided little evidence of a generalised cooling.
• We still expect that the unemployment rate will move higher over 2024 and for labour cost growth to moderate. Nonetheless, the RBNZ will be wary of the risk that inflation does not settle below 3%, with the OCR unlikely to be moved lower until 2025.
  

Q1 2024 Labour Market Data Preview: Easing

24 Apr 2024

• March 2024 quarter labour market figures are expected to show further easing in labour market conditions, with the unemployment rate climbing to its highest level in 3 years
• Growth in the labour supply looks set to continue to outstrip the slowing demand for workers, with the unemployment rate set to push above 5% by year end. Labour cost growth should continue to ease
• Despite the cooling labour market backdrop, the threshold to OCR cuts being delivered over 2024 is high. We don’t expect OCR cuts until early 2025

2024 Q1 CPI Review: Strong domestic inflation to delay RBNZ cuts

17 Apr 2024

• Q1 24 inflation printed lower than we expected, but higher than RBNZ forecasts.  However, the details highlighted that domestic inflation pressures are proving stubborn to stamp out
• Annual non-tradable inflation remains stubbornly high and the RBNZ will have wanted to see more movement on this front.  Core measures were unchanged to slightly lower, highlighting that returning inflation to target continues to be a slow grind
• The RBNZ will be very wary of the risk of inflation being stuck above 3%: we now expect the RBNZ to wait until February 2025 to cut the OCR

REINZ Housing data – March 2024: House prices see-saw as inventory creeps up

16 Apr 2024

• NZ house prices edged down slightly in March, as the patchy performance of the past six months continues
• New listings have risen, and sales turnover is still modest, meaning the number of houses on the market has nudged up
• We expect prices will lift over 2024, albeit the pace looks set to be modest until interest rates fall

2024 Q1 CPI Preview: Down but not out

15 Apr 2024

• We expect a 0.7% quarterly increase in the headline CPI over Q1, however annual inflation is likely to fall to 4.1% - the lowest since June 2021
• Higher tradable forecasts account for most of the divergence between our forecast and the RBNZ’s in Q1.  However, our non-tradable pick is also higher than RBNZ forecasts
• Importantly, the recent trend of lower core inflation should remain evident in the data

NZ Migration and Tourism - February 2024: Reality check

15 Apr 2024

• Strong February migration figures reveal a reality check to those thinking that net immigration flows will rapidly cool
• Courtesy of a Chinese New Year inflow, tourism inflows into NZ picked up, but remain below pre-COVID peaks.  High resident short-term departures will likely reduce the economic boost to the NZ economy
• Moderating inflows of non-NZ citizens are expected to drive net migration inflows lower over time, but the firmly on hold stance from the RBNZ remains prudent

Electronic Cards Transactions – March 2024: Card spending continues March-ing backwards

12 Apr 2024

• Card spending continues to soften as consumers slam their wallets shut in the face of mounting headwinds
• There’s little good news in the breakdowns by category, with the decline in spending pretty broad based at this point
• High interest rate settings are clearly working to crimp consumer spending, but the RBNZ wants to see a bit more progress on reducing inflation before cutting the OCR

Monthly CPI data – March 2024: Inflation remains on a cooling trajectory

12 Apr 2024

• Food prices fell in March, with annual food price inflation at close to 3-year lows. Other prices ticked marginally higher
• Our add-up of the monthly CPI series shows points to a modest tick-up in Q1, but with the cooling trajectory for annual rates generally intact. Our preliminary Q1 CPI pick is for a 0.7 qoq, 4.1% yoy outturn for Q1 CPI, with upside risk
• This data highlights that while inflationary pressures are generally receding, it remains much too soon to declare mission accomplished.  OCR cuts are unlikely to be delivered until at least November

Infrastructure - it's not just a pipe dream

10 Apr 2024

• There are a number of challenges posed by installing fit for purpose infrastructure that will make our lives easier
• However, ignoring the challenges we face today, will only make tomorrow’s infrastructure headaches worse
• There is the need for greater alignment on our infrastructure needs, with a multi-decade focus needed. infrastructure needs to be fit for purpose and cognisant of future challenges posed by climate change and population growth

Review of RBNZ April Monetary Policy Review: Firmly on hold

10 Apr 2024

• The RBNZ held the OCR at 5.5% and maintained a neutral policy bias
• Key messages were little changed since the February MPS, showing little hurry to change current restrictive settings
• We continue to expect the RBNZ will cut the OCR in November this year, but that that monetary settings will remain on the restrictive side of neutral for a year or so beyond that

Quarterly Survey of Business Opinion 2024 Q1: Post election sentiment bounce proves to be fleeting

09 Apr 2024

• Q1 QSBO results show a sharp deterioration in business sentiment, with the post-election bounce in headline sentiment, key activity, investment and hiring metrics all reversing
• Pricing and cost pressures eased fractionally despite the deterioration in activity and labour market metrics. It still raises questions of whether inflation is on track to settle below 3% on a sustained basis
• A lengthy period of restrictive OCR settings still looks to be needed despite the weak activity and labour market backdrop. We do not expect OCR cuts to begin until later in 2024

Preview of RBNZ April Monetary Policy Review: Rinse and repeat

04 Apr 2024

• We expect the RBNZ to keep the OCR at 5.5%, with few signs it is shifting its views on when OCR cuts will start
• News since the February MPS has been mixed, minor in its implications and roughly as the RBNZ anticipated
• We continue to expect the RBNZ will cut the OCR in November this year, earlier than its recent forecasts implied

Review of the Government Budget Policy Statement: An Old Mother Hubbard Budget?

27 Mar 2024

• Delivering tax cuts and trying to get better value out of Crown spending remain key priorities for the Government
• The economic challenges to the fiscal position are well understood, with the risks to the downside
• The Government has acknowledged that an operating surplus isn’t likely until 2028

Sustainable Economics: Towards Net Zero

25 Mar 2024

• NZ’s energy usage will need to become heavily electrified if NZ is to meet its net zero by 2050 emissions target.  70% of emissions in the net zero target are related to fossil fuel energy use
• Transport and industrial processes, the largest users of fossil fuel energy, will likely lead the transition towards a more electrified future
• Renewable electricity generation and transmission capability will need to increase massively if large-scale electrification is adopted

Q4 2023 GDP Review: Not pretty

21 Mar 2024

• NZ economic activity fell -0.1% in the December quarter, meaning NZ ended 2023 in recession.
• Strong population growth means a smaller pie being divided up increasingly thinly.
• The RBNZ is succeeding in cooling economic activity, but the key thing is how quickly lower demand dampens inflation. On balance, today’s data raises the odds of OCR cuts before year-end.

Q4 2023 GDP Preview: Few bright spots as the NZ economy stays soggy

15 Mar 2024

• We expect the NZ economy contracted another -0.2% qoq in Q4, or around -1.1% in per-capita terms
• Activity looks weak across the board, with services activity – a bright spot until now – showing signs of slowing
• NZ’s post-pandemic recovery in output per capita has largely eroded and the slice of the pie each Kiwi is receiving is barely any bigger than it was back in late 2019

REINZ Housing data – February 2024: Prices grind higher

14 Mar 2024

• NZ house prices built on January’s strong lift, but the pace of growth slowed in February
• Sales activity rebounded sharply from January’s slump, driven by a burst of activity in Auckland.  However, last year’s cyclone and the leap year are muddying the waters
• Sales activity will need to remain robust to keep a lid on anecdotes of rising inventory.  Nevertheless, strong population growth is likely to continue to underpin demand for housing over 2024

NZ Migration and Tourism - January 2024: Coming in

14 Mar 2024

• January figures reveal a softer month but continue to show chunky upward revisions, with annual inflows revised up
• Tourism inflow numbers crack the 3 million annual mark, but strengthening resident short-term departures will likely reduce the economic boost
• We expect that moderating inflows of non-NZ citizens will drive net migration inflows, but the uncertainties involved suggest that the firmly on hold stance from the RBNZ is prudent

Monthly CPI data – February 2024: Monthly price pressures tick up

13 Mar 2024

• Overall prices rose in February, with a fall in food prices more than offset by rises across the other components
• Our add-up of the monthly CPI series shows a tick up in inflationary pressure over the month, but the general cooling trajectory remains intact.  Cooling inflation pressures are consistent with a RBNZ in watch and wait mode
• The data highlight that while inflation continues to broadly cool, it remains far too soon to declare mission accomplished.  OCR cuts are unlikely to be delivered until later in 2024

Electronic Cards Transactions – February 2024: Consumer-led slowdown continues

12 Mar 2024

• Total February card spending tanks despite climbing prices and strongly growing population
• The figures reveal that the underlying retail position is extremely weak, with per household retail volumes contracting as living cost headwinds and the cooling labour market backdrop dampen household spending patterns and appetites
• Weak retail figures prove that monetary policy is working to slow inflation. Still, the RBNZ will be wary of cutting the OCR too soon

Review of RBNZ February Monetary Policy Statement: Declawing the Hawks

28 Feb 2024

• The RBNZ kept the OCR on hold at 5.5% as most expected, with a dovish tilt
• The threshold for a move in either direction remains high for the time being
• We continue to expect the RBNZ to cut the OCR in November, though the risks are more balanced now that the RBNZ has signalled some comfort with its stance after a run of conflicting signals in economic data

Q4 2023 Retail Trade Review: Thud

23 Feb 2024

• Retail volumes slumped in Q4, marking the 8th consecutive quarter of retrenchment with volumes down 4.1% over 2023 as the household-led economic slowdown continues
• Falls in retail were widespread, with the 2023 contraction in retail activity particularly severe given extremely strong net immigration
• Weak household spending activity is a pre-requisite to getting inflation down on a sustained basis. Retail activity is extremely weak, but the RBNZ will remain watchful and will not cut the OCR until much later this year

Preview of RBNZ February Monetary Policy Statement: November Rain?

20 Feb 2024

• Headline inflation is cooling but some elements are proving to be sticky – which will concern the RBNZ
• We don’t think OCR increases are necessary because inflation should moderate within an acceptable timeframe
• However, we now think the RBNZ will wait slightly longer, until at least November, before cutting the OCR

RBNZ Governor Orr Speech: Something for everyone

16 Feb 2024

• RBNZ Governor Orr largely launched a strong defence of the current monetary policy framework
• However, the strong emphasis of the speech on addressing persistent underlying inflation (which remains high) suggests that OCR cuts are not on the immediate horizon
• The observation that there is no optimal time horizon for which to return to a 2% inflation target, providing potentially more wiggle room

NZ Migration and Tourism December 2023: Resilient migration likely to support the case for later OCR cuts

15 Feb 2024

• Another month, another set of strong migration figures earmarked by chunky upward revisions
• Tourism arrivals underwent a strong uptick in line with usual seasonal trends, though there’s still a way to go before we’re close to pre-pandemic peaks
• Today’s travel data continue the recent clip of reasonably resilient economic data, and will bolster the RBNZ’s case for keeping the OCR on hold for longer

REINZ Housing data and Electronic Cards Transactions – January 2024: January house prices and card spending make solid gains

14 Feb 2024

• NZ house prices rose a solid 1% in January, with strong population growth and less new construction set to continue tightening housing market conditions from here
• A housing market print like this doesn’t mean the RBNZ will need to chuck another couple of hikes on the barbie or anything – particularly given the lighter volume of sales over January – but further heating in the market will support the case for keeping monetary policy tighter for longer and, in turn, keep a lid on the market
• Electronic Card Transactions rebounded from a weak December, but the trend remains pretty flat

Q4 2023 Labour Market Data Review: Labour market only slowly cools

07 Feb 2024

• Q4 labour market data shows only modest cooling, with the pace of hiring rebounding from its Q3 fall and only a marginal lift in the unemployment rate
• Labour cost growth looks to be plateauing at levels considerably above the top of the 1-3% inflation target range, with distributional figures providing little evidence that wage pressures are cooling
• We expect that the unemployment rate will move higher over 2024 and labour cost growth will slow. Nonetheless, the RBNZ will be wary of the risk that inflation does not settle below 3%. The risk is that OCR cuts begin later in 2024 than our August forecast

Q4 2023 Labour Market Data Preview: Cooling

02 Feb 2024

• The 2023 Q4 labour market figures are expected to show further easing in labour market conditions, with the unemployment rate climbing to its highest level in nearly 3 years
• Growth in the labour supply looks set to continue to outstrip the demand for workers, with the unemployment rate set to move concertedly higher over 2024. Labour cost growth should continue to ease
• Despite the cooling labour market backdrop, the hurdle to OCR cuts over the next few months is high. Persistently-elevated labour cost growth could delay the timing of OCR cuts

Brexit Costs and Implications: Brexit border checks may cut UK goods exports by 22-27%

01 Feb 2024

• Three years since Britain’s departure from the EU, we quantify Brexit’s impact on UK goods exports
• We find that UK goods exports look to be 22-27% lower than they would otherwise be as a result of Brexit
• Brexit and its associated reduction in trade is a reminder of the fragility of globalisation

2023 Q4 CPI Review: Soft headline but lopsided pricing pressures remain

24 Jan 2024

• Q4 inflation surprises the RBNZ to the downside again, with annual CPI inflation at its lowest in 2½ years
• The details showed a lopsided inflation print and were not as benign as the RBNZ would have been hoping for. It did not provide the RBNZ with complete reassurance that its extensive monetary tightening to date is gaining traction
• The RBNZ will be wary of the risk of inflation being stuck above 3% and will maintain restrictive OCR settings for as long as it takes to push inflation below 3% on a sustained basis

2023 Q4 CPI Preview: Trending lower as the COVID-19 price premium unwinds

19 Jan 2024

• We expect a 0.5% quarterly increase in the headline CPI over Q4, with annual inflation falling to 4.7%
• Much of the difference with the higher RBNZ pick is for tradable prices. We expect the unwinding of the COVID-19 premium to be the key factor pushing overall inflation below 3% by the second half of 2024
• Domestic inflation readings should start to cool, but if progress on lowering inflation stalls OCR cuts could potentially be delayed till 2025

REINZ Housing data – December 2023: A surprise December house price fall

18 Jan 2024

• NZ house prices fell 0.3% in December, wrongfooting our expectations for some continued post-election recovery
• Broader market indicators are looking mixed, with sales activity only advancing slightly and days-to-sell data proving sticky
• Nonetheless, we expect house price inflation to gain ground from here, albeit with restrictive interest rates keeping a lid on how spicy the market gets

Card Spending December 2023: Christmas fizzle

17 Jan 2024

• Card spending fell in December, with falls recorded across most categories.
• The fall follows a robust November print and suggests some consumers may have done their Xmas shopping early last year.
• However, it's very clear that the consumer demand backdrop remains weak and that the RBNZ's monetary policy tightening is having the desired impact.

Quarterly Survey of Business Opinion 2023 Q4: Post-election bounce

16 Jan 2024

• Q4 QSBO shows a post-election bounce in business sentiment, and key activity, investment and hiring metrics, that point to a strong cyclical rebound over 2024.  We remain sceptical on whether this will transpire given headwinds facing the NZ economy
• Pricing and cost pressures are easing, but further cooling is needed to be consistent with sub 3% headline inflation on a sustained basis.  This could be undone if the foreshadowed recovery in demand impacts pricing decisions
• A lengthy period of restrictive OCR settings still looks to be needed to ensure sub 3% inflation is delivered.  We do not expect OCR cuts to begin until the second half of 2024, with the risk of a later start

ASB Economic Note: What to look out for in 2024

11 Jan 2024

Global and NZ interest rates, currencies, and equity markets were volatile over 2023, with a number of geopolitical, economic and climate-related events to contend with.

Here, we highlight 5 key risks for 2024.

Household Debt Servicing Outlook: 90% delivered, another 10% to go

21 Dec 2023

• Higher debt servicing costs are expected to continue to pressure household budgets heading into 2024. The average increase in debt servicing costs from 2021-2024 is expected to be just over $100 per week for each household, although the cashflow impacts will be uneven
• We anticipate that overall mortgage interest rates will remain at restrictive levels for a while yet. New mortgage interest rates will likely fall in 2024, but it will take time to impact overall borrowing costs
• The impending readiness of DTI restrictions will be a valuable addition to the RBNZ’s policy toolkit and should enable OCR cuts to be brought forward earlier. We expect OCR cuts from August 2024

OCR Forecast View Change: OCR cuts coming sooner as economy softens

20 Dec 2023

• Q3 GDP and revisions show the economy has been losing momentum to a greater extent than envisaged
• Inflation pressures will follow suit
• Accordingly, we now expect the RBNZ will first cut the OCR in August 2024

NZ Half Year Economic and Fiscal Update 2023: Light on details, come back in May 2024

20 Dec 2023

• The Half Year update provided was light on specifics. Its market and policy relevance was low
• The mini-Budget (which was not incorporated in the HYEFU projections) did identify $7.5bn in overall fiscal saving, mainly achieved via expenditure restraint. This is a signal of intent
• A strong signal of fiscal restraint will be needed in the May 2024 Budget if the OCR is to be cut in 2024

Q3 2023 GDP Review: GDP Shrinks, NZ economy 1.6% smaller than we thought

14 Dec 2023

• The NZ economy shrunk by 0.3% in the September quarter, substantially softer than all and sundry were anticipating. On a per capita basis, that’s a shrinkage of 0.9%
• There have been sizable downward revisions to previous quarterly growth estimates – with June’s outturn being halved – meaning there has been considerably less activity taking place than we previously thought
• Taken in conjunction with a weaker CPI result, the risk is that the RBNZ can cut the OCR earlier than we’d previously expected. But we are sticking with our early 2025 view for now

REINZ Housing data – November 2023: House prices keep powder dry in post-election immediacy

13 Dec 2023

• NZ house prices eked out a 0.4% gain in November, reversing the pause we saw as the country went to the polls
• There isn’t much sign of a housing market acceleration post-election, but it’s far too early to be extrapolating on that given the coalition was only formed at the end of the month and no policy change was in place
• We still expect house price inflation to gain ground from here, though restrictive interest rate settings are likely to keep a lid on how spicy the market gets for the time being

Card Spending November 2023: Bouncing into the end of 2023

12 Dec 2023

• Card spending jumped in November, with widespread gains across most categories
• The degree to which Black Friday sales contributed to the gains will only become evident down the line
• Outside of enticing sales and population growth, the demand environment remains subdued and card spending is still falling on a per capita basis.  We don’t expect a turn around in fortunes any time soon

NZ Migration and Tourism October 2023: Higher starting point, but scale of upward revisions easing

12 Dec 2023

• Annual net PLT immigration hit a record high in October, with the risk of a higher for longer net immigration boost that will have implications for the economic and interest rate outlook
• Exceptionally strong net immigration has kept the NZ economy out of recession and has bolstered labour market capacity.  However, the RBNZ remains wary of the support provided to domestic spending, the housing market and to inflationary pressures
• Tourist arrivals slowed and strong pent-up demand for overseas travel by resident kiwis point to a lower net boost to the NZ economy

Q3 2023 GDP Preview: More turkey, less to go round

08 Dec 2023

• We expect GDP growth lifted +0.2% in Q3, roughly in line with RBNZ expectations
• Some growth headwinds have materially eased, but a portion of monetary tightening already implemented by the RBNZ has yet to be fully felt
• NZ looks likely to have dodged a 2023 recession, but strong population growth conceals flagging per-capita activity. Like roast turkey on Christmas Day with all the cousins, we’ve got a bigger chook but there is less to go around

2024 Household Living Cost Outlook: Still struggling, but light at the end of the tunnel

07 Dec 2023

• The outlook is uncertain, but we expect the average household having to stump up an extra $70 per week in 2024 just to cover costs following a $115 weekly increase in 2023
• Overall increases in living costs are slowing, but the impacts are uneven. We expect slowing increases for consumer goods but for still chunky rises in debt servicing and for other consumer services
• Many households will continue to struggle, and while household spending is under pressure, the solid household income backbone and pent up post-COVID saving has kept the household sector afloat. To get inflation down on a sustained basis will require restraint on the part of households. If not, higher OCR settings may result.

Review of RBNZ November Monetary Policy Statement: No Governor Grinch, though only by a pinch

29 Nov 2023

• As Christmas draws closer the RBNZ just refrained from taking presents away from borrowers: OCR stays at 5.5%
• The RBNZ was more wary of upside inflation risks than we had expected
• Nevertheless, we continue to expect the RBNZ to remain on hold until February 2025

IoD Director Sentiment Survey 2023: Insights from the New Zealand Director Community

27 Nov 2023

• Economic pessimism amongst directors remains high despite modest improvement since 2022 and relatively higher levels of organisational optimism, which has been a consistent contrast since surveying began
• Inflation and cost of living was the main economic headwind this year, closely followed by labour capacity and capability, which continues to be the dominant organisational risk despite changes in immigration settings and loosening of the labour market
• Labour capacity and capability continued to be the dominant organisational risk despite changes in immigration settings and loosening of the labour market

Preview of RBNZ November Monetary Policy Statement: Damp squib

24 Nov 2023

• We don’t expect any fireworks from the November MPS, with the OCR on hold and little change in tone
• If anything, recent events will make the RBNZ more comfortable with its on-hold stance
• We still expect the RBNZ to wait until February 2025 to cut the OCR, though the risks are skewed to earlier

Q3 2023 Retail Trade Review: Some resilience, but nothing to write home about

24 Nov 2023

• Retail volumes were flat over Q3, generally proving a bit more resilient than anticipated
• Core volumes rose 1%, likely boosted by stronger net migration and a Women’s Football World Cup boost
• The resilience in retail activity will have helped prop up growth in Q3, but we continue to expect the myriad of headwinds facing the retail sector to weigh on consumption over the near-to-medium future

REINZ Housing data – October 2023: Housing market takes a mid-election pause for thought

16 Nov 2023

• The NZ housing market cooled in October, notching up its first monthly price decline in six months off the back of reduced housing market activity
• With some deceleration also taking place in September, there may well be a bit of ‘wait and see’ going on as prospective buyers and sellers awaited the election outcome
• We still view broader housing market drivers as supportive for prices, though restrictive interest rate settings are likely to keep a lid on how spicy the market gets

NZ Migration & Tourism (Sep) and Card Spending (Oct) 2023: Migration strong, card spending soft

15 Nov 2023

• Net migration hits a fresh record high in September as upward historical revisions continue
• Electronic card spending falls across the board in October, highlighting the challenges facing the household and retails sectors
• Record strong population growth is not yet propelling the economy forward, or at least not the retail sector

ASB Economic Note: Q3 2023 Labour Market Data Review - Cooling

01 Nov 2023

• Q3 labour market figures confirm an easing in tight labour market conditions, with hiring falling and the unemployment rate at its highest in 2 years.
• Labour cost growth looks to have peaked in the private sector, with increasing spare labour market capacity set to push wage and core inflation lower over time. 
• Hurdles to OCR moves over the next few months remain high. The RBNZ will want to see inflationary pressures continue to cool and will retain restrictive monetary settings for long as necessary to hit its 1-3% inflation target. OCR cuts still look a long way off.

Q3 2023 Labour Market Data Preview: Coming Off

26 Oct 2023

• The 2023 Q3 labour market figures are expected to show further easing in tight labour market conditions, with the unemployment rate expected to climb to its highest level in more than 2 years.
• The subpar demand for labour and rapidly increasing labour supply are expected to further ease labour market pressures, which in time should help to dampen wage and core inflation.
• Our view is the hurdle to OCR moves over the next few months remains high. The RBNZ will want to see inflationary pressures continue to cool and will retain restrictive monetary settings for long as necessary to hit its 1-3% inflation target.

2023 Q3 CPI Review: Underlying inflation pressures ease

17 Oct 2023

• Q3 inflation surprises to the downside, with annual CPI inflation falling to its lowest in two years
• Some of the near-term risks identified by the RBNZ were evident, but disinflationary forces are growing, with easing core inflation rates highlighting a cooling underlying inflationary impulse
• Despite 5%+ annual inflation, a confluence of factors should push inflation lower over the medium term. The hurdle to an OCR hike is high and we don’t see the OCR moving above 5.5%. The RBNZ will remain wary and will likely maintain restrictive OCR settings for as long as is necessary to deliver sub-3% inflation

2023 NZ General Election: National in driver’s seat, but how many partners?

16 Oct 2023

• The National Party is set to form a government, with support from ACT and (potentially) NZ First
• The election night vote count, and a likely win in a forthcoming by-election, would give National and ACT the 62 seats they need for a majority, but they may lose a seat or two in the final vote count
• It will be unclear until at least November 3rd if not longer whether National and ACT alone are likely to be able to form a government.  NZ First has indicated, though, that it would provide support if needed

2023 Q3 CPI Preview: Holding up

13 Oct 2023

• We expect a 2.2% quarterly increase in the headline CPI over Q3, with annual inflation ticking up to 6.1%
• Many of the near-term risks identified by the RBNZ look to be crystallising, extending the period of high inflation
• Despite the strong inflation starting point, a confluence of factors should push inflation lower over the medium-term. The RBNZ will be wary and will likely maintain restrictive OCR settings for as long as necessary to deliver sub-3% inflation

REINZ Housing data September 2023: Housing market takes a September breathe

12 Oct 2023

• In a reversal of its recent acceleration, the NZ housing market was flat in September, with prices unchanged over the month
• The recent improvement in activity metrics also paused, but it is too early to say whether that’s a blip or a sign of things to come
• We still think that strong recent population growth and tighter housing supply will continue placing upward pressure on prices, but expect restrictive interest rate settings to moderate the pace of gains – particularly if the OCR remains on hold for longer

NZ Migration and Tourism August 2023: Risks of higher for longer net immigration build

11 Oct 2023

• Annual net PLT immigration hit a record high, with the risk of a higher for longer net immigration boost that will have implications for the economic and interest rate outlook
• To date the impacts of extremely strong net immigration on domestic spending, the housing market and inflation are weaker than implied by historical relationships
• Tourist arrivals eased after earlier Women’s World Cup boost but have also been revised higher, but strong pent-up demand for overseas travel by resident kiwis it points to a lower net boost to the NZ economy

2023 NZ General Election: Incremental rather than transformational change

11 Oct 2023

• The 2023 General Election could be close and consistent with traditional MMP norms
• According to the polls, neither of the left or right leaning blocs may be able to form an outright majority
• Nonetheless, the mood for change appears to be strong and polls have not always been reliable in the past

RBNZ October Monetary Policy Review: Firmly on hold and high for longer

04 Oct 2023

• As was widely expected the Official Cash Rate (OCR) was held at 5.50%, with the RBNZ sticking to its firmly on hold stance and choosing not to convey an explicit bias. However, it did highlight that policy settings may need to remain restrictive for a longer period of time
• The RBNZ acknowledged recent improvement but qualified this by noting financial conditions had tightened, with capacity pressures easing. Risks to the inflation outlook remained balanced
• The high for longer message by the RBNZ is consistent with our core view. There is a high hurdle to OCR increases, and OCR cuts are not expected until 2025

Quarterly Survey of Business Opinion 2023 Q3: Easing labour market capacity may reduce need for further OCR hikes

03 Oct 2023

• The Q3 QSBO depicted an improvement in business sentiment, but actual and expected domestic activity were weak, with firms still gun shy on investment
• Capacity pressures continue to significantly ease in the labour market and hold out the prospect of inflation moving lower on a sustained basis
• Nonetheless, pricing and cost metrics remain too high, with a lengthy period of restrictive OCR settings needed to ensure inflation settle

NZ Migration Economic Impacts: The composition matters

29 Sep 2023

• Our work suggests that the composition of immigration generates different impacts on economic activity, inflation, and labour and housing markets
• Evidence suggests that strong net immigration may actually be exerting more of a disinflationary impact via alleviating capacity pressures in the labour market
• The upshot is that strong net immigration should temper the degree of upside risk to OCR settings. Nonetheless, the RBNZ will need to remain watchful and will keep conditions tight to insure against a potential housing market resurgence and further economic overheating

Preview of the RBNZ October Monetary Policy Review: RBNZ to kick for touch

29 Sep 2023

• We expect RBNZ will hold the OCR at 5.50% and signal that restrictive settings will be needed for some time to deliver on target inflation
• While some short-term upside risks to the inflation outlook have crystalised, the continued tightening in financial conditions and downward skew to medium term risks favour an on hold stance
• Pronounced uncertainty and other risks suggest that a ‘wait and see’ approach is the prudent course of action for now

2023 Q2 NZ GDP Review: NZ resilience on show in Q2 growth figures

21 Sep 2023

• The NZ economy grew by a substantially-stronger-than-expected 0.9% in the June quarter, while small backward revisions mean NZ no longer experienced a technical recession
• As expected, strong services activity powered growth over the quarter, though the goods sector lifted too
• Still-present headwinds mean we still expect the pace of activity to slow over the course of the next year, but the continued resilience of the NZ economy highlights the risk that OCR settings will need to remain tight for a prolonged period to get inflation back into target

Q2 2023 GDP Preview: Resilience on show in Q2 – but it will be tough to sustain

15 Sep 2023

• We expect GDP growth lifted a fairly decent +0.6% in Q2 – a shade stronger than we’d previously anticipated
• Strong activity across much of the service sector has been on show, but both agriculture and manufacturing are looking less flash
• Broader growth headwinds remain clear and present – particularly from offshore – and we still anticipate output will be pretty anaemic over the second half of 2023

REINZ Housing data – August 2023: Groundhog data

13 Sep 2023

• The NZ housing market continues to warm up in an orderly fashion
• It’s a decent month for the capital, though prices in Auckland have still made the most post-trough gains
• Strong recent population growth and tighter housing supply are a recipe for continued upward pressure on prices, but we still expect restrictive interest rate settings to moderate the pace of gains

NZ Migration and Tourism July 2023: Migration boost difficult to detect

12 Sep 2023

• Annual net PLT immigration hits a record high, with further upward historical revisions likely to boost the starting point estimates
• Despite extremely strong net immigration, the impact on domestic spending and the housing market are considerably weaker than implied by historical relationships
• Tourist arrivals benefit from a Women’s World Cup boost, but remain well below early 2023 peaks, with more recent data points to a tailing off in arrivals

August 2023 NZ Electronic Card Transactions: A boost from the boot

12 Sep 2023

• Total card spending rose in August, with the FIFA Women’s World Cup clearly boosting retail spending
• The August lift will have been a welcome change of pace for retailers in what’s been a slow first half to 2023
• Nevertheless, we expect recent trends will resume from September as the FIFA boost unwinds

NZ Pre-Election Economic and Fiscal Update 2023: Fiscal slippage constrains future choices

12 Sep 2023

• The weaker short-term economic outlook has contributed to softer profiles for budget balances, higher Crown debt and an increased bond tender programme relative to Budget 2023
• Despite the rhetoric of $4bn in fiscal savings, operational government spending is now forecast to be higher than in Budget 2023, with 2023/24 a whopping $52bn above pre-COVID-19 levels
• NZ’s fiscal metrics remain world class, but the less healthy fiscal backdrop likely constrains fiscal policy options available for the next Government

Q2 2023 Trade Data Review: A surprise bounce – but not expected to be sustained

04 Sep 2023

• NZ terms of trade held up better than anticipated in Q2, underpinned by much-more-resilient-than-anticipated export prices
• Given more recent falls in commodity prices, we’re still expecting NZ’s terms of trade to ease further in the coming months
• Service exports continue to post whopper annual gains, though more timely arrival data continues to suggest tourism arrivals are plateauing

NZ Pre-Election Economic and Fiscal Update 2023: Less fiscal leeway will constrain future choices

29 Aug 2023

• A weaker short-term economic outlook will contribute to softer profiles for budget balances, higher Crown debt and an increased bond tender programme
• NZ’s fiscal metrics remain world class, but the less healthy fiscal backdrop likely constrains fiscal policy options available for the next Government
• Ongoing deterioration of our fiscal metrics could trigger potential credit downgrades, raising the cost of funds and further weakening the NZD

Q2 2023 Retail Trade Review: The consumption recession

23 Aug 2023

• Retail volumes continue to contract, with 2023 shaping up to be a very challenging year for the sector
• Weak consumer demand is consistent with our view that the RBNZ has done enough to bring inflation back to target, in time
• But the RBNZ wants to be sure inflation will return to target.  And with domestic inflation cooling at a very slow pace, and some upside risks lurking, rate cuts remain a distant prospect

ASB Trade Disruptions Report: August 2023

18 Aug 2023

• Since our last long-form trade disruptions report, things have got easier for exporters and importers in some ways - and trickier in others
• When we first launched this publication, the primary challenges for businesses were on the supply side of the ledger: length shipping delays, eye-watering freight costs, broader logistics disruption and constrained output at the front-end of the production process
• Most of those issues have eased - albeit unevenly - but new challenges have popped up on the demand side

Sustainable Economics: New Zealand’s GHG Emissions Profile

17 Aug 2023

• New Zealand’s gross emissions have been reasonably steady over the past 15 years
• New Zealand emits roughly 80,000 kilotonnes of CO2-e from the production of goods and services per year
• In 2020, 52% of those emissions were generated by the agricultural sector, followed by 13% from the manufacturing sector

RBNZ August 2023 Monetary Policy Statement Review: The Hawkish hold

16 Aug 2023

• The RBNZ held the OCR at 5.50%, reiterating that the OCR would need to remain at a “restrictive level” for some time to come
• The RBNZ is wary about declaring victory too soon, and flagged the risk of the OCR moving higher-still, with the published rate outlook tweaked up, implying cuts aren’t on the horizon this year or next. There is also some risk of more monetary restraint being necessary if domestic inflation readings fail to quickly subside
• Our core view is the current 5.50% will be the OCR peak in this cycle, but have delayed our forecast cuts until August 2024 (previously May)

REINZ Housing data July 2023: Nothing to see here

15 Aug 2023

• House prices notch up another lift in the latest timely data, further supporting the view the market reached a trough earlier in the year and is now moving past its lows
• But the market looks to be hotting up slowly rather than galloping away
• With high levels of net migration cooling and interest rate settings still extremely restrictive, we expect house prices to continue on this trajectory for some time

NZ Migration and Tourism June 2023: Evidence of a NZ migration boom hard to find

14 Aug 2023

• Net immigration inflows remain robust, with further upward historical revisions likely to boost the starting point estimates
• To date there are few signs of a net immigration boost to domestic demand, whereas stronger net immigration looks to have supported labour market capacity in NZ
• Tourist arrivals look set to remain well below pre-COVID-19 peaks and with plenty of pent-up demand for overseas holidays, we suspect there to be less support for domestic spending

Preview of RBNZ August Monetary Policy Statement: Holding the line in testing times

10 Aug 2023

• We expect the RBNZ will keep the OCR on hold in August and beyond, though the risk of a further hike remains
• Recent news has generally reinforced the view that inflation should keep falling sufficiently quickly
• But interest rates need to remain high for a while: we don’t see a lower OCR until mid-2024

July 2023 NZ Electronic Card Transactions: Winter chill

09 Aug 2023

• Total card spending fell in July amid a very challenging economic backdrop for consumers
• There were falls across most sectors in July 2023, with consumables a notable exception
• Falling consumer demand is consistent with our view that the current 5.5% OCR will be the peak.  But it’s premature to discuss rate cuts

Q2 2023 Labour Market Data Review: Labour market tightness remains

02 Aug 2023

• Despite recessionary conditions the NZ labour market has remained tight, with solid gains in employment and record labour force utilisation. This looks to reflect an element of catch-up and likely overstates the underlying strength of labour demand
• Labour cost growth was not as high as expected but held close to record annual highs with widespread lifts.  There are signs of a wage-price spiral becoming embedded
• Subpar demand and rising supply should see more labour market slack emerge over 2023 and inflation cool, but the return to 1-3% CPI inflation is not yet assured. There remains a risk of a higher OCR peak than 5.5% this cycle

Q2 2023 Labour Market Data Preview: From boil to simmer

28 Jul 2023

• Q2 figures are expected to show an easing in tight labour market conditions, with the unemployment rate edging up from historical lows. Wage growth should remain strong, although high inflation is sapping spending power
• The subpar demand for labour and increasing labour supply are expected to act to alleviate labour market pressures. In time this should help to dampen wage pressures and core inflation
• There looks to be a high hurdle to OCR moves over the next few months, but if wage and core inflation fails to cool sufficiently, the OCR peak could be above 5.50% this cycle

2023 Q2 CPI Review: Core inflation proving very hard to stamp out

19 Jul 2023

• The CPI rose 1.1% qoq in Q2 2023, in line with the RBNZ expectations, but slightly higher than the median economist pick (including our own forecast)
• Importantly, domestic inflation remains high, sticky and is lagging the pull back we’ve seen in recent pricing surveys
• Sticky non-tradable inflation will keep the RBNZ on alert and of the view that monetary policy will need to remain restrictive for the foreseeable future.  But we ultimately expect the RBNZ to remain on hold

REINZ Housing data June 2023: It’s an upswing Jim, but not as we know it

13 Jul 2023

• REINZ data affirm the NZ housing market looks to be at a turning point, with prices managing their first meaningful lift in more than eighteen months
• With mortgage rates close to peaking, supply stabilising and stronger population growth of late, prices can make further gains over the coming months
• But we think this upswing will look different to the last one, with prices recovering slowly rather than galloping away

2023 Q2 CPI Preview: A gradual descent

13 Jul 2023

• We expect a 0.9% quarterly increase in Q2 headline CPI, with annual inflation falling below 6% for the first time since December 2021
• The tradable/non-tradable split matters for RBNZ policy, and we expect non-tradable inflation to remain sticky.  But downside risks to the inflation outlook are building
• Nonetheless, the RBNZ will maintain restrictive OCR settings for some time to ensure inflation will move back to target in a timely manner

NZ Migration and Tourism May 2023: Net immigration cools for a second month

12 Jul 2023

• Net immigration inflows have cooled over the past two months, ending a strong run of inflows
• To date there are few signs of a net immigration boost to domestic demand, whereas stronger net immigration has supported labour market capacity in NZ
• Both tourist arrivals and departures eased in May, while the annual visitor arrival total ticked up to 2.45 million, up 2.19 million from the May 2022 year (when the border was closed most of the year)

Review of RBNZ July Monetary Policy Review: Comfortably Done

12 Jul 2023

• As widely expected, the RBNZ left the OCR on hold at 5.5%, and continued to signal it has done enough for now
• The RBNZ repeated its key statements that continued restrictive conditions will get inflation down
• We still see the RBNZ as done with tightening, though don’t expect a lower OCR until May next year

Preview of RBNZ July Monetary Policy Review: Holding Pattern

06 Jul 2023

• Events since the May Monetary Policy Statement support the RBNZ keeping the OCR on hold at 5.5%
• Inflation gauges are cooling – notably the migration surge is helping to ease labour supply constraints
• The RBNZ will remain wary that inflation could be stubborn to come down. Nevertheless, we continue to see 5.5% as the OCR peak

Quarterly Survey of Business Opinion 2023 Q2: Some comfort for the RBNZ - but don’t declare victory yet

04 Jul 2023

• The Q2 QSBO continues to show some marginal improvement in headline business confidence, albeit from soggy territory and with firms more pessimistic on the outlook for their own activity
• Capacity measures continue to trail the likelihood core inflation can carry on easing, though costs are proving stubborn for now
• It is still too early for the RBNZ to declare victory just yet, and interest rates will remain high for some time to come

Sustainable Economics: NZ’s ETS is under review

27 Jun 2023

• The Government is seeking feedback on whether the ETS needs to be reformed.  It’s looking at whether the ETS needs to prioritise gross emissions reductions (rather than net) and how to balance this with the need for ongoing emissions removals via afforestation
• We see merit in separating gross emissions reductions from emissions removals.  We also agree that current ETS settings are over incentivising afforestation at the expense of gross emission reductions
• Policy is complex and we certainly don’t have all the answers.  But clarity on how we will transition to any new design as well as robust stop gap measures will be important to reduce uncertainty and the risk of inaction.  Because it’s the decisions made today that will influence future emissions

NZ Migration Outlook and Impacts: Not the same boost from migration this time around

23 Jun 2023

• The current influx of migrants does not look like it is significantly adding to demand pressures, while it appears to be enhancing NZ labour market capacity and the speed limit of the economy.
• We do not believe NZ is currently in a migration super cycle and expect net inflows to eventually cool.
• Even if net immigration inflows remain strong, we suspect the inflationary impacts are unlikely to be as marked or persistent as past booms, with much less upside risk to OCR settings.

REINZ Housing data May 2023: Housing market at a turning point

15 Jun 2023

• REINZ housing data appears to show the NZ housing market at a turning point, with prices largely flatlining and activity metrics warming, albeit from still weak levels
• Broader housing market drivers are also looking more supportive for prices, with solid net migration, supply indicators stabilising and mortgage rates look like they are close to peaking
• Nationwide house prices look set to edge higher given key support factors, but we don’t expect prices to gallop away given stretched affordability

2023 Q1 NZ GDP Review & Forecast Update: A soggy starting point

15 Jun 2023

• The NZ economy fell 0.1% over Q1, more or less bang-on expectations and confirming a technical recession
• Sluggish economic output is looking pretty broad-[based, with primary industries, the goods sector and the services sector all in recessionary territory. Cyclone Gabriel won’t have helped
• Stronger population growth has also been one of the major things supporting growth – on a per capita basis, GDP has fallen 1.1% and 0.7% over the past two quarters

NZ Migration and Tourism April 2023: Soaring net immigration cools

13 Jun 2023

• Net immigration inflows cool sharply in April, ending a strong run of inflows
• To date there are few signs of a net immigration boost to domestic demand, whereas stronger net immigration has supported labour market capacity in NZ
• Tourism inflows into NZ fall and with resident departures out of NZ still ticking up, it could mean a lower net boost to NZ than earlier assumed

May 2023 NZ Electronic Card Transactions: Crunch time

12 Jun 2023

• Total card spending fell sharply in May, adding to evidence that consumers are keeping their wallets shut
• There were falls across all sectors in May 2023 relative to April 2023, except for services spending
• The chill evident in recent consumer spending data is consistent with our view that the current 5.5% OCR will be the peak.  But it’s premature to discuss rate cuts

NZ Productivity Update: Still waiting for that productivity miracle

09 Jun 2023

• NZ’s productivity track record has been poor, with a further slowing in productivity evident since COVID-19
• There are glimmers of hope, with signs of improved productivity performance for parts of the services sector post COVID-19. All that COVID-19 pain may have delivered a productivity dividend
• Nonetheless, the outlook is for subpar rates of productivity growth to continue that will constrain the inflationary speed limit for the NZ economy despite the expected strengthening in the working age population

Q1 2023 GDP Preview: Posteriors on pews propping up production?

08 Jun 2023

• We expect GDP growth lifted a teensy 0.1% in the three months to March, in a lumpy quarter battered by extreme weather events
• With a more stimulatory fiscal policy, plenty of infrastructure rebuild in the pipeline and – most importantly of all – migration surging, the economy may escape recession this year. The emphasis is on the ‘may.’
• But broader growth headwinds remain clear and present, and we still anticipate per-capita output will contract over 2023

Q1 2023 Trade Data Review: Throwing fuel onto the trade deficit fire

02 Jun 2023

• NZ terms of trade ease by more than expected in Q1, underpinned by cyclical easing in commodity prices
• Import volumes remain stubbornly high, with petroleum import volumes surging in the aftermath of the Marsden Point refinery closure
• Unsurprisingly, service exports have surged since the NZ border opened, but more timely data suggests arrivals may be plateauing

Q1 2023 Retail Trade Review: Belt tightening begins

24 May 2023

• It appears consumers are starting to tighten their belts with retail volumes falling for two consecutive quarters
• With soaring living costs likely to prevail over 2023 and the prospect of even higher mortgage interest rates, 2023 will be challenging for the retail sector
• We expect a final 50bp OCR hike in May.  Material weakness in household spending could eventually trigger OCR cuts, but those risks are lessened while net migration is running hot

RBNZ May Monetary Policy Statement Review: Done and dusted

24 May 2023

• The RBNZ surprised by lifting the OCR by 25bp (we expected 50bp) and signalling it has done enough
• Two things in focus over the past week - migration and the Budget – were downplayed to some extent
• We expect that the RBNZ is now firmly on hold, providing data keep showing that inflation pressures are easing

RBNZ May Monetary Policy Statement Preview: More people, more fiscal, big hike?

19 May 2023

• We expect the RBNZ to lift the OCR a final 50bp in May to 5.75% and flag the risk of a further hike
• Inflation has peaked.  But fiscal spending is keeping up the heat, and the RBNZ’s response to migration is also key
• The market is appropriately pricing in over 50bp of hikes, but appears too ahead of itself in pricing in rate cuts

NZ Budget 2023: More spending + more debt = higher interest rates

18 May 2023

• Budget 2023 unveils weaker profiles for budget balances, and upward tweaks to Crown debt and bond issuance that are largely driven by higher government spending.  The economic outlook was modestly upgraded and a recession is forecast to be avoided
• Government spending is expected to decline as a share of GDP, but operational and capital allowances were revised up, with a good chunk of the spending increases occurring over the next year or so
• Fiscal policy settings are deemed to be more expansionary relative to the HYEFU and will do little to prevent the OCR from moving up or drive a meaningful improvement in our gargantuan current account deficit

NZ Budget 2023 Preview: No frills may not be enough to deter RBNZ hikes

12 May 2023

• A “no frills” Budget is expected to be delivered, with marginally weaker profiles for budget balances, and modest upward tweaks to Crown debt and bond issuance reflecting downgrades to Treasury forecasts for economic activity and the costs of cyclone damage
• The $4bn in reprioritisation of spending and spending cuts in some areas should cap lifts in overall operational and capital allowances and see government spending decline as a share of GDP
• It remains to be seen whether this will be sufficient to deter further RBNZ OCR hikes or drive a meaningful improvement in our gargantuan current account deficit 

NZ Migration and Tourism - March 2023: Surging migration boosts both sides of the economy

12 May 2023

• Clear trend of strengthening net immigration continues as arrivals of non-NZ citizens hit record highs
• On current trends, net immigration is on track to top 100,000 persons annually by mid-year
• Tourism inflows into NZ look to have plateaued, with Chinese visitor numbers still low. With resident departures out of NZ still ticking up, it could mean a lower net boost to NZ than earlier assumed

REINZ Housing data – April 2023: Housing downturn set to be less severe than expected

11 May 2023

• REINZ housing data appears to show the NZ housing market on the turn, with prices stemming their descent and activity metrics showing very gradual signs of warming
• Broader housing market drivers are also looking more supportive for prices, with net migration running very strong, supply indicators stabilizing and mortgage rates increasingly close to peaking
• We may be getting close to a turning point, and we now expect prices to decline about 17% from their late 2021 peak by the latter part of this year

Sustainable Economics: NZ Carbon Market Overview

10 May 2023

• Carbon markets can help to reduce emissions by making it more costly to emit carbon dioxide
• In New Zealand there are both mandatory and voluntary carbon markets.  Some businesses are required under law to pay for the emissions they produce, while others choose to do so voluntarily
• The price of emissions can differ depending on whether you are captured under NZ’s mandatory system or purchase offsets through voluntary carbon markets.  Prices can also change over time.  But supply and demand play a big role in the price of carbon units in both markets

April 2023 NZ Electronic Card Transactions: Card spending increases but underlying weakness evident

09 May 2023

• Total card spending rose in April, likely supported by ongoing restocking as well as widespread price increases
• Lifts in consumer and durable spending offset falls across all other categories in the month
• Inflation is still too high and is consistent with one final 25bp rate hike by the RBNZ in May to a 5.50% OCR peak

Q1 2023 Labour Market Data Review: Tight labour market starting point seals the deal on another RBNZ hike

03 May 2023

• The NZ labour market has remained tight, with sizeable gains in employment, record labour force participation, and with the unemployment rate and other utilisation metrics hovering around record lows
• Labour cost growth was not as strong as expected, but still hit a record annual high with widespread lifts
• Both weaker demand and stronger supply should see greater labour market slack emerge over 2023, but the RBNZ is unlikely to shirk from further monetary tightening. OCR cuts are unlikely until well into 2024

Q1 2023 Labour Market Data Preview: Turning

28 Apr 2023

• The Q1 figures are expected to show some cooling in tight labour market conditions, with the unemployment rate edging higher from historical lows. Wage growth should remain strong, with annual labour cost inflation likely to hit record highs
• Slowing demand for labour and increasing labour supply are expected to further alleviate labour market pressures. In time this will dampen wage pressures and core inflation
• We look to be towards the end of the RBNZ’s rate hiking journey and expect a 25bp May OCR hike and a 5.50% peak this cycle 

2023 Q1 CPI Review: Soft headline masks solid core

20 Apr 2023

• Q1 CPI comes in well below RBNZ expectations, with few signs of an immediate Cyclone Gabrielle boost as yet. Lower tradable prices largely accounted for the downward surprise
• There is still a large bow wave of inflationary pressure in place, with very high rates of core and non-tradable inflation evident. However, there are signs that domestic pricing pressures may also be cooling
• Downside risks to the inflation outlook have grown, but the RBNZ will likely maintain restrictive OCR settings for a concerted period to be confident inflation will settle below 3%. OCR cuts are unlikely until mid-2024

REINZ Housing data – March 2023: Subtle signs of life in the housing market

18 Apr 2023

• NZ house prices continued to fall in March, but at a notably slower pace than we’ve seen during the housing downturn to date  
• Activity measures ticked up across most of New Zealand, suggesting it was more than a post-Cyclone bounce
• We think house prices still have further to fall, but the cyclone impacts and accelerating net migration are adding a layer of uncertainty to the outlook

2023 Q1 CPI Preview: Plus 7% again

17 Apr 2023

• We expect a 1.8% quarterly increase in Q1 headline CPI, with annual inflation steady at 7.2%
• The impact of recent weather events adds to the list of uncertainties over the inflation outlook
• Downside risks to the inflation outlook are building. Nonetheless, the RBNZ must maintain restrictive OCR settings to limit the longer-term economic damage caused by high inflation 

Neutral OCR Update: The ASB Neutral OCR Corridor

13 Apr 2023

• Our estimates suggest the neutral OCR is currently just above 3%. This is in a similar ballpark to recent RBNZ estimates
• The neutral OCR is trending. After falling for close to 30 years, post-2020 estimates have turned up
• The neutral OCR outlook is highly uncertain, with the firm short-term inflation outlook adding to upward pressures. However, we believe its longer-term downward trend will eventually reassert itself over time

March 2023 NZ Electronic Card Transactions: Replacement spending surge

12 Apr 2023

• Total card spending jumped in March, with evidence of repairing and restocking activity underway
• Storm-related spending is likely to be reasonably short-lived.  Broader headwinds to the retail sector are intensifying
• Still-high inflation amid demand-supply imbalances tip the scales towards one final 25bp rate hike by the RBNZ in May to a peak of 5.50%, but it’s a line ball call

RBNZ April OCR Review: RBNZ comes out guns blazing

05 Apr 2023

• The RBNZ lifted the OCR by 50bp, to 5.25%.  The broad consensus was a 25bp increase
• Inflation remains too high and too persistent, and the recent weather disasters are now assumed to be more inflationary than initially assumed in February
• A final 25bp increase in May, to 5.50%, is our new forecast – but it’s a lineball call

Quarterly Survey of Business Opinion 2023 Q1: Capacity frictions ease, pointing to lower core inflation in the future

04 Apr 2023

• The Q1 QSBO depicted a marginally improved business sector backdrop, albeit with actual and expected domestic activity and investment intentions highlighting recessionary conditions
• Pricing and cost metrics remain too high to be consistent with sub 3% inflation. The next move in the OCR is up
• Easing capacity pressures in the labour market hold out the prospect of inflation moving lower on a sustained basis 

RBNZ April OCR Preview: Nearing the end

29 Mar 2023

• We expect the RBNZ to lift the OCR by 25bp on Wednesday 5th April, though a 50bp hike is still possible
• Monetary settings are already highly restrictive, which along with a weaker than expected economic outlook, pronounced uncertainty and global banking wobbles are key reasons for the RBNZ to slow the pace of OCR hikes
• The tightening cycle is not quite finished – we’d expect another 25bp increase in May, to 5.25%

Household Living Cost Outlook for 2023: No respite for household budgets

22 Mar 2023

• Household budgets are getting clobbered by the soaring cost of living
• Recent natural disasters are expected to keep NZ inflation elevated
• Continued increases in the cost of living and weakening household balances sheets look set to continue to weigh on household sector activity over 2023, with recession looming

2022 Q4 NZ GDP: Running aground

16 Mar 2023

• The NZ economy fell 0.6% in Q4 2022 – close to ASB’s forecast but weaker than both the consensus and RBNZ views – and Q3’s whopper lift was revised lower. As we expected, weak manufacturing output and retail trade were the biggest weights on growth
• The path of the economy is going to be lumpy over the coming quarters, with recession in NZ a distinct possibility
• We have tweaked our OCR view and now expect a 25bp OCR hike in April but have stuck with a 5.25% OCR peak

NZ Current Account Deficit – Q4 2022: NZ Current Account deficit skyrockets in Q4

15 Mar 2023

• The NZ Current Account deficit has widened out to 8.9% of GDP in Q4, substantially larger than most forecasters expected
• A substantial widening in the goods deficit was the key driver as exports flatlined and imports rose substantially, but the services and primary income balances remain well in negative territory
• The NZ current account deficit will narrow over the course of 2023, though we may see a shade of further near-term widening

REINZ Housing data – February 2023: House price falls accelerate once again

14 Mar 2023

• NZ house prices have notched up another substantial fall in February, with Auckland underperforming  
• Activity measures have hit new lows, albeit with Cyclone Gabrielle complicating the picture
• The NZ housing market won’t be turning around imminently, but the cyclone, higher net migration and a less clear path for the RBNZ have introduced a chunk of extra uncertainty into the outlook

Q4 2022 GDP Preview: Down in the dumps

10 Mar 2023

• We expect GDP fell 0.5% in Q4, with an element of payback from Q3’s whopper 2% lift
• Q4 data is well and truly in the rear-view mirror, having been overtaken by subsequent events, it could still be much weaker than the RBNZ and most forecasters expect
• The cyclone Gabrielle rebuild is set to support growth in the near-term, but broader headwinds remain

February 2023 NZ Electronic Card Transactions: Gabrielle dampens card spending

09 Mar 2023

• Storm disruptions dampen total card spending, with non-retail, hospitality and apparel retail hit 
• Volatility lies ahead with a storm-related boost occurring at a time when headwinds to the retail sector are intensifying
• Persistently-high inflation should see the OCR move higher in the coming months, with the extent of moves dependent on the inflation outlook

Trade Disruptions Update: March 2023

01 Mar 2023

• Global trade hit a record last year, despite disruptions
• The 2023 trade outlook faces a number of challenges: weak global growth, high interest rates, geopolitical unrest
• Nevertheless, supply chain congestion is likely to keep easing

Q4 2022 Retail Trade Review: Soft end to 2022

27 Feb 2023

• It was a weak end to 2022 retailing, with Q4 retail volumes contracting.  Soaring living costs and RBNZ warnings have weighed on the demand for retail goods, with durable goods notably soft
• Recent storms are expected to provide a short-term boost to retail as consumers restock.  It may provide an opportunity for retailers to trim high stock levels
• Beyond that, how the household sector copes with rising debt servicing (and wider living) costs will have a crucial bearing on how far up the OCR goes and how long restrictive monetary policy settings are maintained

RBNZ February Monetary Policy Statement Review: RBNZ sticks to its script

22 Feb 2023

• The RBNZ lifted the OCR the expected 50bp, notwithstanding the tragic weather disasters of recent weeks
• The underlying inflation environment remains strong, though signs of easing price pressures were noted 
• We continue to expect the OCR to rise a further 50bp in April to 5.25%; the RBNZ still flags a 5.5% OCR peak 

International Outlook: China’s re-opening unlikely to save NZ from recession

14 Feb 2023

• At first glance, China’s earlier than expected re-opening appears to be a positive development for New Zealand’s economy in 2023
• But on closer inspection it is unlikely to unlock a wave of demand for NZ’s exports nor offset widespread weakness in other major export markets
• We don’t expect China will be a silver bullet for NZ’s economy this year and recession is still imminent

REINZ Housing data – January 2023: Eye of the storm

14 Feb 2023

• NZ house prices ease again in January, but with a more modest monthly fall than we’ve become used to
• Still, this is unlikely to be a turning point, with days to sell sitting at record highs and further interest rate lifts still to come in the near term
• We retain our chunky 25% peak-to-trough fall in house prices, though stronger population growth and slightly less restrictive interest rates could produce in a smaller dip

January 2023 NZ Electronic Card Transactions: Strong start to 2023 but storm boost set to temporarily flatter retail

10 Feb 2023

• RBNZ warnings of pending recession look to have had a fleeting impact, with a solid January rebound for retail card values to seasonally-adjusted record highs. Higher retail prices are likely to have contributed
• Despite a solid start to 2023 and a storm-related boost in the coming months, headwinds to household spending over 2023 remain strong
• Persistently-high inflation should see OCR hikes in the coming months, with the extent of moves dependent on the inflation outlook

Q4 2022 Labour Market Data Review: Less-tight labour market with less RBNZ urgency needed

01 Feb 2023

• The labour market ended 2022 not as tight as expected, with the NZ unemployment rate and other utilisation metrics moving slightly above record lows
• Labour cost growth was not as strong, though still at a record annual high with widespread lifts
• We look to be close to a turning point for the labour market, and the need for outsized OCR hikes also looks less urgent.  Accordingly, we believe the RBNZ can step back to ‘only’ a 50bp move in February and 5.25% OCR peak

2022 Q4 CPI Review: Widespread price rises will concern the RBNZ

25 Jan 2023

• Q4 CPI was in line with the market consensus, but close to 30-year highs and miles above the 1-3% inflation target
• There is still a large bow wave of inflationary pressure in place, with widespread price increases and very high rates of core and non-tradable inflation evident
• Downside risks to the medium-term inflation outlook have grown, but the RBNZ must press forward with OCR hikes for now. OCR cuts still look a long way off

2022 Q4 CPI Preview: Has NZ inflation peaked?

19 Jan 2023

• We expect a 1.6% quarterly increase in Q4 headline CPI, with annual hitting a fresh multi-decade high of 7.4%
• Sharply lower petrol prices mask widespread and increasing pricing pressures, with annual non-tradable and core inflation set to strengthen further
• Downside risks to the inflation outlook are building. Nonetheless, the RBNZ must press ahead with OCR hikes to limit the economic damage caused by high inflation

December 2022 NZ Electronic Card Transactions: Muted end of year for retail, with a challenging 2023 ahead

18 Jan 2023

• RBNZ warnings of pending recession look to be hitting home, with a muted December for retail card values and with card spending volumes likely to have contracted in Q4 of last year
• Household spending is set to remain weak over 2023 as headwinds facing the sector intensify
• The RBNZ is still expected to press forward with OCR hikes in the coming months, but weakness in household spending could see eventual OCR cuts bought forward

REINZ Housing Data – December 2022: Wet weather

18 Jan 2023

• Rising interest rates, a less acute housing shortage and cautious prospective buyers continue to weigh on the housing market, with prices down another 1.2% mom in December
• It’s been another shocker for activity metrics, and we don’t expect the market to turn around before mid-2024
• We retain our chunky 25% peak-to-trough fall in house prices, with prices set to ease a further 15-17% from here

Quarterly Survey of Business Opinion 2022 Q4: Sentiment slump points to difficult 2023

17 Jan 2023

• The Q4 QSBO depicted a weaker business sector backdrop, with actual and expected domestic activity contracting, investment intentions slumping, and firms cutting back on hiring
• Pricing and cost metrics worsened, with still acute labour shortages. This should keep domestic inflation elevated for a while yet, and points to stagflation-like conditions
• Future readings from the QSBO (particularly labour capacity metrics) could dictate how quickly inflationary pressures recede, impacting the OCR profile

Q3 2022 GDP Review: Resilience

15 Dec 2022

• The NZ economy continues to demonstrate remarkable resilience, underpinned by solid construction volumes and strong services activities
• GDP is backward looking and the challenge for economists is working out how much of this strength will be sustained – we still expect growth to slow over 2023
• Nevertheless, the economy is clearly in a much stronger starting point than the RBNZ will have anticipated as it embarks on the latter part of the tightening cycle – we wouldn’t rule out even further front-loading of next year’s rate hikes 

Economic Note: Tighter fiscal line will please the RBNZ

14 Dec 2022

• Updated Treasury forecasts provided a gloomy economic assessment but still managed to deliver the return to OBEGAL surplus in 2024/25 despite likely recession in 2023
• Debt levels were also revised up, but NZ’s fiscal metrics remain the envy of many OECD comparators and provide plenty of scope for future fiscal easing
• More restrictive fiscal settings will likely please the RBNZ but are unlikely to stop further OCR hikes over 2023. They could, however, bring forward subsequent OCR cuts

Housing Update: REINZ November 2022 - Not heading for a summer swelter

13 Dec 2022

• Another month, another fall in house prices, notching up their largest month-on-month fall since the year 2000.
• Activity measures point to more softness ahead – this is not a market about to turn around.
• We’ve nudged up our forecast peak-to-trough house price fall to 25% – but remember, a lot depends on what data series is being used to measure the market.

Q3 2022 GDP Preview: Slow-mo

09 Dec 2022

• We expect GDP lifted 0.9% in Q3, down a bit from Q2’s 1.7% bounce.
• Growth is set to slow to a crawl next year thanks to by virtue of ongoing capacity constraints, a painful hit to the household sector, weaker global growth and a cooling housing market, among other headwinds.
• The RBNZ has signalled it is willing to help take growth into negative territory if that’s what it takes to bring employment back below its maximum sustainable level and suppress inflationary pressures.

November 2022 NZ Electronic Card Transactions: Black Friday fizzer as consumers batten down the hatches

09 Dec 2022

• RBNZ warnings of pending recession look to be hitting home, with a muted November lift for retail card values and decline in total spend, as a Black Friday bounce fails to emerge.
• Durable spending looks to have lost its mojo and is set to weaken over 2023 as higher debt servicing costs bite, with a contraction in spending looming for the household sector next year.
• The RBNZ is still expected to press forward with OCR hikes. We expect a further 125bps of OCR hikes next year (5.5% mid-2023 peak) to tame elevated inflation. 

Household Debt Servicing Outlook: This is going to hurt

08 Dec 2022

• Higher debt servicing costs are expected to add roughly $80 per week to the average household budget by the end of next year.
• The impacts are uneven with highly indebted households to face considerably higher costs.
• Discretionary spending will be hard hit and we foresee recessionary conditions for the household sector in 2023.

Q3 2022 Retail Trade Review: Retail spending in the RBNZ’s sights

25 Nov 2022

• Much weaker than expected rebound in Q3 retail volumes results as rising consumer prices weigh on demand for retail goods and durable goods retrace from earlier peaks. We suspect consumers are also shifting expenditures back towards pre-COVID-19 norms. That will largely be missed by the retail trade figures but will be picked up by economy-wide GDP
• Despite a number of headwinds and weak sentiment the household sector in general has held up well to date. Nonetheless, retail activity is clearly in the RBNZ’s sights and is likely to struggle over the period ahead as the monetary policy brakes are applied more forcefully
• How the household sector copes with rising debt servicing (and wider living) costs will have a crucial bearing on how far up the OCR goes and how long restrictive settings are maintained

Sector Impacts: Transitioning out of COVID-19

24 Nov 2022

• Over the last three years the New Zealand economy has held up reasonably well
• Economic performance has been uneven
• The outlook is still inherently uncertain, but we sketch out the outlook for several key sectors of the NZ economy

RBNZ November Monetary Policy Statement Review: Speak loudly and swing a big stick

23 Nov 2022

• The RBNZ lifted the OCR by 75bp and sounded extremely hawkish – including discussing a 100bp hike
• Rising inflation expectations have contributed to the added urgency
• From here we expect the RBNZ to lift the OCR by 75bp in February and 50bp in April

RBNZ November Monetary Policy Statement Preview: Hike it like it’s hot

16 Nov 2022

• We expect the RBNZ to hike by 75bp next week and forecast an OCR peak upwards of 5%
• Although it is relatively late in the tightening cycle, inflation pressures are looking increasingly stubborn
• Markets are largely positioned for a ‘resolute’ RBNZ, with reaction to a hesitant stance likely to be largest

REINZ Housing data – October 2022: When it REINZ, it pours

15 Nov 2022

• NZ house prices notch up their 11th consecutive monthly decline, albeit with the downturn still proceeding in a relatively orderly fashion
• Activity measures remained in the gutter – there’s still no sign of a turnaround any time soon
• We expect it will be mid-2023 before we start to see the housing market pick up again, with RBNZ signals around the OCR peak and signs of any pick-up in net migration numbers will be our canary in the coal mine for a market turnaround

October 2022 NZ Electronic Card Transactions: Solid October for retail as hospitality spending hits record high

09 Nov 2022

• Another solid month for card values, driven by higher hospitality and durable spending and partly reflective of higher prices.
• We have retained our subpar outlook for retail spending given the number of headwinds. Still, it is not all doom and gloom for the sector.
  
• The household sector is the canary in the coalmine as to how it copes with rising debt servicing costs and will have a crucial bearing on OCR settings.

Q3 NZ Labour Market Review: The wages of sin

03 Nov 2022

• As expected, the NZ labour market remained pretty darn tight in Q3, though higher participation kept unemployment froorm moving too much lower despite very strong employment growth.
• Tight labour market conditions are set to persist well into 2023.
• With wage inflation stirring, the RBNZ still has work to do.
  

Q3 2022 Labour Market Data Preview: Annual labour cost growth set to hit record high

28 Oct 2022

• The Q3 figures are expected to show an extremely tight labour market. We expect a modest increase in employment, likely pushing the unemployment rate towards record lows given muted growth in the labour force.
• Labour cost growth is expected to hit fresh annual record highs, pointing to elevated readings for core CPI inflation going forward.
• The RBNZ will need to slow the demand for labour to cool medium-term inflationary pressures. We expect a 75bps hike in November OCR decision and further hikes beyond that, but note the risks are skewed towards the RBNZ doing less rather than more.

2022 Q3 CPI Review: Firm Q3 inflation print to prompt swifter RBNZ response

18 Oct 2022

• Q3 CPI much stronger than ASB, market and RBNZ expectations, with annual CPI inflation stuck close to 30-year highs
• There is still a large bow wave of inflationary pressure in place, with high rates of core and non-tradable inflation still in evidence and the risk of these outcomes becoming increasingly entrenched
• Inflation is much too high. Increasingly restrictive OCR settings are required.  We now expect a 75bp increase in November, a 50bp hike in February and final lift in April (50bp pencilled in) – implying a peak of 5.25%

2022 Q3 CPI Preview: Firm underbelly but less dire NZ inflation outlook beckons

14 Oct 2022

• We expect a 1.5% quarterly increase in Q3 headline CPI, with annual inflation falling to 6.5%. The future is still highly uncertain, but the inflation outlook is looking considerably less dire than it did a few months ago
• Sharply lower global shipping costs flag the risk of a swift deceleration in tradable CPI inflation. Our expectation is that housing group inflation will likely soon peak, if it has not done so already. However, core inflation should remain elevated for a while yet
• Inflation remains much too high for the RBNZ’s comfort and increasingly restrictive OCR settings are required

REINZ Housing data – September 2022: The low-down

12 Oct 2022

• The NZ house price correction continues to proceed in an orderly fashion, with another modest month-on-month fall
• Activity measures suggest this isn’t a market on the cusp of turning around
• We’ve adjusted our forecast for a peak-to-trough fall in house prices to about -15% (previously -12%)

September 2022 NZ Electronic Card Transactions: Reorientation of spending patterns continues

11 Oct 2022

• Solid September lift in card values, driven by higher apparel, fuel and hospitality spending and partly reflective of higher prices
• Retail card spending volumes are likely to have flatlined in Q3 and we have retained our subpar outlook for retail spending given the number of headwinds. However, the reorientation of consumer demand towards services and strong income growth suggests that household spending should fare better
• We expect a further 75bp of OCR hikes (4.25% peak) to tame elevated inflation, with a more resilient household sector potentially meaning a longer period of restrictive OCR settings

RBNZ October Monetary Policy Review: Not done with the 50s yet

05 Oct 2022

• The RBNZ lift the OCR by 50bp to 3.5%, as widely expected
• The key messages in the statement suggest the RBNZ is on track to deliver another 50bp in November and it remains firm in its stance
• We continue to expect a 4.25% peak in early 2023, with the risks clearly skewed up

QBSO Q3 2022: Something for everyone

04 Oct 2022

• The Q3 QSBO depicted mixed signs in the business sector, with weak activity signalled for the second half of 2022, pricing pressures receding, capacity metrics mixed, and costs still elevated
• It is not just the lack of demand holding the economy back. The lack of labour remains the major constraint on expansion despite a welcome easing in skilled and unskilled labour shortages
• Future readings from the QSBO (particularly labour capacity metrics) will likely have an impact on how much more work the RBNZ will have to do. We expect a 50bp hike tomorrow (to 3.50%) and a 4.25% early 2023 peak. Risks are tilted to the upside 

RBNZ October Monetary Policy Preview: 50 calibre

29 Sep 2022

• We expect the RBNZ to deliver its fifth consecutive 50bp increase, on October 5
• Recent events will have kept the RBNZ confident that it needs to keep lifting the OCR swiftly
• We see the OCR peaking at 4.25% early next year, though risks remain skewed more up than down

Household Living Cost Update: The income offset

21 Sep 2022

• Soaring living costs are expected to add roughly $110 per week to household budgets over the next 12 months.
• High wage inflation and an extremely stretched labour market have also been good for household income growth, and this should provide a sizeable offset.
• We still expect a subpar outlook for household spending and a 4.25% OCR peak, but stronger outcomes for the former are possible that will have implications for OCR settings in the context of still tight capacity pressures.

The household sector has gone from leading the domestic expansion to being more of a bystander. Current headwinds facing the sector include the rising cost of living, lower house prices and weaker balance sheets, and lower population growth. This has contributed to downbeat headlines and weak measures of consumer sentiment. Updating our earlier work suggests households will continue to face higher living costs. All up, household weekly outgoings look set to rise by roughly $110 per week over the next 12 months or so although exposures will vary. Large borrowers are expected to be particularly exposed, but the household sector in general looks to be well placed to handle higher debt-servicing costs. We have also been surprised with how quickly household incomes have climbed, with increases in after-tax incomes expected to modestly exceed the surging cost of living. This does not mean a repeat of the 2021 honeymoon period.  Household spending growth is likely to remain subpar over the next year or so. This should cap some of the upside risk to the OCR outlook, but not all, given our expectation capacity pressures will remain tight. We see the OCR peaking at 4.25% early next year. However, stronger household spending could further add to inflation, tighten the labour market, and see even more restrictive monetary settings.  

Q2 2022 GDP Review: Economy soars in Q2

15 Sep 2022

• Q2 GDP above market consensus, but in line with RBNZ expectations
• Subsequent GDP prints are expected to remain volatile as the economy continues the process of transitioning back to pre-COVID-19 norms.  The pace of growth will slow, but base momentum should remain decent
• We now expect a further 25bp hike in early 2023 on top of the 100bps of hikes by the end of this year, taking the OCR to 4.25%. OCR cuts would be conditional on pressures of capacity and elevated core inflation cooling

REINZ Housing data – August 2022: An August Echo

13 Sep 2022

• Another month, another tick down in house prices, with Welly looking particularly soggy
• There’s no ‘smoking gun’ to say the market is on the turn with activity measures looking decidedly mixed
• The much-ballyhooed NZ house price correction continues to proceed at an orderly pace, and we retain our forecast for a 12% peak-to-trough fall

August 2022 NZ Electronic Card Transactions: Retail starting to gain traction

09 Sep 2022

• Modest August lift in spending, some of which is reflective of higher prices. However, core spending posted its strongest rise in 4 months
• We have retained our subpar outlook for domestic household spending activity given the number of headwinds facing households. However, rising household incomes highlight some upside risk to this view
• We expect further OCR hikes to tame elevated inflation, with a more resilient household sector potentially meaning a longer period of restrictive OCR settings

Q2 2022 GDP Preview: Come on, feel the noise

09 Sep 2022

• We expect GDP lifted 1.2% in Q2, with the economy now a fraction above mid-2021 levels – but it’s a noisy quarter and our confidence in quarter-to-quarter swings is low
• Growth is set to slow, with severe capacity constraints, painful cost pressures, higher interest rates, weaker global growth and a cooling housing market all persistent themes
• But the economy isn’t on the brink of collapse either: we still see scope for a re-orientation in growth towards the external sector, and we expect domestic demand to prove comparatively resilient

Q2 2022 Terms of Trade: Both sides now

02 Sep 2022

• NZ’s terms of trade ease back 2.4% in Q2 from record highs thanks to a bumper lift in import prices
• Export volumes bounce back and look set to increase slowly, while slowing domestic demand will continue to weigh on import demand over time
• There might be a bit more of a J curve dynamic to come, but we expect NZ’s terms of trade to move higher again over the coming quarters

August ANZ Business Outlook: Rinse, repeat

31 Aug 2022

• Rinse, repeat. Activity expectations improve and pricing intentions ease a fraction, as with last month 
• But big picture still one of an economy generating too much inflation as it groans under supply constraints
• Nothing to throw the RBNZ off its stated course of getting the OCR to 4% this year

Q2 2022 NZ Retail Trade Review: Q2 retail slump flags H1 2022 recession risk for NZ economy

25 Aug 2022

• Much weaker than expected Q2 retail volumes highlight the risk that NZ was in a technical recession in the first half of 2022. This is not our core view, however
• The trifecta of soaring living costs, weaker household balance sheets and sluggish population growth are expected to weigh on household spending activity over the remainder of 2022
• The RBNZ will continue to hike nonetheless and, while a 4% OCR is unlikely to sink the household sector, it will eventually pave the way for OCR cuts

Housing Confidence: Seeing is Believing

25 Aug 2022

• Housing confidence falls to 13-year lows as the housing market downturn deepens
• Buyer sentiment bounces off low levels, as falling house prices and booming wage growth ease affordability pressure
• Interest rate expectations hold at record highs

NZ Labour Supply Outlook: Labouring past the sweet spot

22 Aug 2022

• NZ is past its labour supply sweet spot, and we foresee much lower growth in the labour force ahead
• Even with our subpar economic growth outlook this suggests (barring a protracted downturn) the unemployment rate will remain below the 4%-4.5% ‘Goldilocks Zone’ for longer than the RBNZ expects
• The tight labour market and elevated domestic inflation outlook requires the RBNZ to maintain a brisk pace of OCR hikes despite extremely sluggish growth. Barring global and local catastrophe, we now expect 50bp OCR hikes in October and November. After peaking at 4%, we envisage OCR cuts from 2024, but this depends on sufficient slack in the labour market being generated

RBNZ August Monetary Policy Statement Review: Still on a hard charge

17 Aug 2022

• The RBNZ lifted the OCR the expected 50bp to 3% and continued to flag further swift action
• There was added concern about labour market pressures – and a substantial lift in expected wage inflation
• A 4% OCR peak looks a little more likely, given some hawkish details under the hood

REINZ Housing data – July 2022: Hibernation

11 Aug 2022

• Few redeeming features in July housing market stats
• Auckland a stand-out weakspot
• The correction in NZ house prices remains orderly, and we retain our forecast for a 12% peak-to-trough decline

RBNZ August Monetary Policy Statement Preview: The OCR rocket continues to soar

11 Aug 2022

• The RBNZ will deliver another (modest by 2022 global standards) 50bp OCR increase on August 17
• Watch for added concern about labour market pressures, despite a likely tempering of the growth outlook
• We continue to expect a 3.75% OCR peak, with the RBNZ still eyeing around 4% give or take

July 2022 NZ Electronic Card Transactions: Soft start to second half of the year for retail

09 Aug 2022

• Flat July spending, kicking off what looks to be a soft second half of the year for domestic retail
• Signs of a school holiday boost for some retail pockets, although easing border restrictions will likely prove to be a mixed blessing
• We have retained our subpar outlook for domestic household spending activity given the number of headwinds facing households

Q2 2022 Labour Market Data Review: Wage price spiral spells trouble for the RBNZ

03 Aug 2022

• The Q2 NZ unemployment rate edges up from record lows, but the labour market still looks exceptionally tight with employment well above its maximum sustainable level
• Labour cost growth soars to a post-GFC high with more sizeable rises to come as workers seek compensation for the skyrocketing cost of living in a tight labour market
• The labour market is expected to remain exceptionally tight heading into 2023, with the RBNZ needing to increasingly lean on aggregate demand so as to cool medium-term inflationary pressure

Trade Disruptions Report: August 2022

02 Aug 2022

• Global trade outlook weakens as inflation, labour shortages and the Ukraine conflict compound COVID woes 
• Import prices continue to rise, up 15% on pre-COVID levels, with further increases to come 
• Export volumes not expected to return to 2020 peak until 2024 

Q2 2022 Labour Market Data Preview: Tight as a drum

28 Jul 2022

• The Q2 2022 figures are expected to show an extremely tight labour market, with labour shortages expected to push the unemployment rate to record lows 
• Annual wage growth is expected to hit its highest rate since 2008. Rises in living costs will outstrip this, with the household sector this year a shadow of its 2021 self
• In the absence of a sizeable increase in labour supply the RBNZ will need to increasingly lean on aggregate demand so as to cool medium-term inflationary pressure.  We expect a 50bp August hike but would not rule out a 75bp move

July ANZ Business Outlook: Dark ‘n’ stormy

28 Jul 2022

• Activity metrics largely unchanged, at worrisome levels
• Support for our view inflation may be peaking
• No implications for RBNZ  

2022 Q2 CPI Review: Plus 7% inflation and ASB changes its OCR view

18 Jul 2022

• Q2 CPI stronger than ASB, market and RBNZ expectations with the 7.3% annual CPI inflation print its highest in more than 30 years. Record high annual non-tradable inflation will be of concern to the RBNZ
• We think annual CPI inflation has likely peaked, but this is still uncertain. Unless labour market pressures concertedly ease, current high inflation outcomes run the risk of being increasingly entrenched
• Firmer RBNZ actions are required, and we now expect 50bp hikes in August and October, a 25bp November hike and a 3.75% end of 2022 OCR peak

REINZ Housing data – June 2022: Trickling down?

13 Jul 2022

• June was another weak month for NZ’s housing market, as expected
• The key uncertainty in the housing environment relates to the interest rate outlook and people’s sensitivity to rising interest rates
• No implications for our forecasts

2022 Q2 CPI Preview: Plus 7(%)

13 Jul 2022

• We expect a 1.5% quarterly increase in Q2 headline CPI, pushing annual inflation to 7.1%, its highest rate in more than 30 years. The outlook is uncertain, but mid-2022 looks to be the peak in annual NZ CPI inflation this cycle
• In the absence of a concerted easing in labour market pressures, current high inflation outcomes run the risk of being increasingly entrenched and well above the upper limit of the 1-3% inflation target
• Restrictive OCR settings are required, and we expect 3.5% peak for the OCR in late 2022. OCR cuts beyond then will depend crucially on the labour market

RBNZ July Monetary Policy Review: Tough Talk

13 Jul 2022

• As long signalled and widely expected, the RBNZ has hiked the OCR by another 50bps to 2.5%
• The Bank has largely copied and pasted its wording from the May MPS, in a sign its calculus hasn’t changed much
• We continue to expect the RBNZ to lift the OCR by 50bp in August, with an eventual peak of 3.50% reached at the end of 2022

June 2022 NZ Electronic Card Transactions: Stronger than the start of the year

11 Jul 2022

• June card spending not as strong as May, but the quarter as a whole is up
• The trifecta of headwinds points to a sub-par outlook for domestic household spending activity over 2022
• The June Quarter, with significant increases in retail card spending across all industries, tentatively is suggesting that NZ economy might have avoided recession. However, it is still very early days for Q2 data

RBNZ July Monetary Policy Preview: Triple threat

08 Jul 2022

• Another 50bps hike beckons at next week’s RBNZ meeting, with the Bank’s calculus broadly unchanged from May
• Sentiment is weakening and speculation about a downturn is mounting, but the starting point for the labour market is very tight and inflationary pressures remain lofty
• The biggest risk to the RBNZ’s mandate is still that higher inflation becomes entrenched in the NZ economy 

2022 Q2 Quarterly Survey of Business Opinion: Stagflation on the horizon

05 Jul 2022

• The Q2 QSBO depicted stagflation-like conditions for the business sector, with shrinking economic activity, still-intense capacity pressures and soaring prices and costs
• Risks of a hard-landing continue to increase, albeit it’s not our core view at present
• Despite a soft activity backdrop, the OCR needs to move higher to try and cool increasingly entrenched high inflation. We expect a 50bp hike next week and a 3.50% OCR peak

NZ Inflation Persistence: How long lasting will the surge in NZ inflation be?

01 Jul 2022

• Developments in the labour market play a pivotal role in impacting inflation, although many of the factors influencing labour market conditions are outside of the RBNZ’s control
• Short of a material loosening in tight labour market conditions, there is the risk of annual CPI inflation remaining above 3% for considerably longer than the RBNZ May 2022 MPS forecasts imply
• Prospects of a soft economic landing look less assured and the RBNZ may face uncomfortable trade-offs ahead

May ANZ Business Outlook: Hazy Shade of Winter

30 Jun 2022

• Business sentiment takes another tumble as signs of stumbling activity broaden
• Supply, rather than demand, constraints are key culprit. But this doesn’t change the calculus for the RBNZ
• Tentative signs of stabilisation in inflation indicators, but RBNZ will want to see some moderation from here

Can we cope with higher mortgage rates? Redux

23 Jun 2022

• We estimate that higher mortgage interest rates will add a (net) $5.6b to aggregate household outgoings over the coming 18 months. It’s a big number, but we expect it to be fully offset by strong income growth.
• However, adding in other cost of living hikes lifts this estimate to more like $15b. Strong growth in household wealth will help buffer this impact, but most of it is tied up in housing. And you can’t pay the bills with your house.
• We’re left with support for our view that consumer spending growth will weaken to anaemic levels later this year, in line with our and RBNZ forecasts.

Q1 2022 GDP Review: Sad Face

16 Jun 2022

• NZ GDP fell 0.2% over the first quarter of 2022, wrongfooting forecasters (like us!) who expected a stronger figure
• We shouldn’t obsess too much over the quarter-to-quarter shifts given how volatile GDP prints have been lately, particularly with Omicron hitting
• As we’ve long signalled, substantial headwinds are mounting and growth over 2022 and 2023 will be much slower

REINZ Housing data – May 2022: Slow leak continues

15 Jun 2022

• May was another weak month for all things NZ housing, as expected
• The decline in house prices to date has been very orderly - more slow leak than blowout
• No implications for our forecasts

May 2022 NZ Electronic Card Transactions: Higher fuel bills support May card spend but retail headwinds intensify

10 Jun 2022

• Stronger than expected gain in May card spending after April bounce, with higher fuel and apparel spending and the normalisation of spending patterns to pre-COVID-19 norms continuing
• Fuel spending was boosted by higher fuel prices and likely increased mobility. Rising fuel prices represent an added headwind to discretionary retail
• We have retained our subpar outlook for domestic household spending activity given our view of mounting headwinds facing the retail sector

Q1 2022 GDP Preview: And now, the slowdown

10 Jun 2022

• It looks like the NZ economy lifted 0.6% over the three months to March, despite the Omicron outbreak.
• The future is more important than the past and, on that front, growth is set to slow over 2022 and 2023.
• Like Murder on the Orient Express, a plethora of headwinds are ready to stick the knife in, with higher interest rates, ongoing cost pressures, slowing construction, softer agriculture production and more cautious households in the frame.

Q1 2022 Terms of Trade: Heading higher from here

02 Jun 2022

• NZ’s terms of trade nudge back towards records highs
• Export volumes are woeful, and we think the recovery will be slow
• We expect our terms of trade to peak towards the end of the year, with a soft landing to follow

May ANZ Business Outlook: Thin ice

31 May 2022

• Inflation indicators didn’t get any worse, affording some comfort to the RBNZ that inflation may be peaking
• Activity measures mostly deteriorated – supporting our view that the RBNZ is too optimistic on the near-term growth outlook. Business and consumer confidence are around recessionary levels
• No implications for our updated OCR view. We continue to expect a further 150bps of OCR hikes this year

RBNZ May Monetary Policy Review: RBNZ up for the fight

25 May 2022

• The RBNZ is worried about continuing to overshoot its objectives, and has come out swinging
• Two consecutive 50bps rate hikes have been delivered, and we now expect a further two in July and August reflecting the Bank’s renewed urgency to get the OCR onto the tighter side of neutral
• We nudge up our forecast OCR peak only slightly, to 3.50%, and bring forward our projected easing cycle to February 2024

Q1 2022 NZ Retail Trade Review: Sluggish start to 2022 retail likely to continue

24 May 2022

• Sluggish start to retail volumes in 2022 following the post-Delta bounce 
• The trifecta of soaring living costs, weaker household balance sheets and sluggish population growth are expected to weigh on household spending activity
• Recession for 2022 cannot be ruled out, but the RNBZ will continue to hike the OCR nonetheless

NZ People Movements: Life in a time of COVID

20 May 2022

• Google mobility data show the pandemic has considerably reduced the use of public transport
• Time spent at workplaces has also seen major shifts and considerable fluctuation. Post-pandemic working styles are likely to see long-lasting change
• The mobility data suggest milder activity impacts vs. 2020 & 2022 if future COVID waves follow

RBNZ May Monetary Policy Statement Preview: No Quarter

19 May 2022

• RBNZ to deliver successive 50bps hike next week
• Recession risks will be acknowledged but inflation is still top of the ‘to-do’ list
• We continue to expect a more cautious, data dependent approach from July, with the pace of hikes returning to the regulation 25bps-per-meeting run-rate 

NZ Budget 2022 Review: Budget 2022 takes a longer-term view but clear risks lie ahead

19 May 2022

• Budget 2022 showed a later return to surplus given the weaker global backdrop, challenges posed by high inflation, and widespread capacity constraints.  Higher inflation has boosted Crown expenditures and revenues
• The Budget also introduced a (lower) headline net public debt measure and two fiscal rules that attempt to strike the balance between prudence, flexibility and taking a longer-term view
• The Government has unveiled an ambitious programme but needs to convert announcements into action and the delivery of its policy agenda.

NZ Budget 2022 Preview: Taking a longer-term view

12 May 2022

• Budget 2022 is expected to show a later return to surplus, given the weaker global backdrop, challenges posed by high inflation and widespread capacity constraints
• It will also introduce a (lower) headline net public debt measure and two fiscal rules that attempt to strike the balance between prudence, flexibility and taking a longer-term view
• To us the focus will be on whether the new approach manages to deliver the Government’s policy objectives over time

REINZ Housing data – April 2022: Cooler Climes

12 May 2022

• The retreat in NZ’s housing market continued in April, albeit at a slightly reduced pace
• There was nothing in the data to change our view that house prices will remain under downward pressure for at least the remainder of this year
• We’ll provide a more detailed run-down of our house price forecasts in our Home Economics publication to be released later today

April 2022 NZ Electronic Card Transactions: Spending soars in April, but momentum unlikely to be sustained

10 May 2022

• Jump in April card spending underpinned by stronger apparel, hospitality, services and consumable retail. Higher retail prices may also be responsible
• Overall card spending just a smidge below 2021 peaks, with some signs spending patterns are pivoting towards pre-COVID-19 norms
• Despite the April jump, we don’t expect this growth momentum to be sustained given our view of mounting headwinds facing the retail sector

Q1 2022 Labour Market Data Review: Labour market set to remain tight over 2022

04 May 2022

• The unemployment rate starts 2022 at a record low, with employment above its maximum sustainable level  
• Wage growth accelerated to a post-GFC high with more sizeable rises to come as workers seek compensation for the skyrocketing cost of living
• The labour market is biased to tighten further over 2022 with the OCR needing to move up further 

Q1 2022 Labour Market Data Preview: Worker shortages to keep labour market tight

29 Apr 2022

• Next week’s Q1 figures are expected to show modestly tighter labour market conditions, with employment flat-lining, but with the unemployment rate likely to test record lows 
• Annual wage growth is expected to hit its highest rate since 2008, given the tight labour market and rocketing cost of living. Accelerating nominal wage growth is on the cards for 2022, but high inflation will outstrip this
• The phased reopening of the border over 2022 could be disruptive for the labour market initially placing additional strains on already-stretched labour market capacity and lifting wage inflation 

April ANZ Business Outlook: Hope Creeps

28 Apr 2022

• Business sentiment remains in the doldrums, with a mixed batch of April confidence readings.
• But a sprinkling of mildly encouraging signs was enough to keep our forecasts in play for low-but-ok GDP growth, and a slow easing in headline inflation from the likely H1 2022 peak
• There was nothing to dissuade the RBNZ from hiking the OCR another 50bps in May, as remains our view, with a steady series of 25bps lifts to follow thereafter

2022 Q1 CPI Review: Nudging 7%

21 Apr 2022

• Annual consumer price inflation generally undershot expectations but still hit its highest level in more than 30 years
• Much of the downward surprise to our inflation pick looks to be due to timing and will likely reverse. Increases in consumer prices look to be widespread, with the risk of high inflation becoming more entrenched
• We expect the RBNZ to move swiftly and deliver a 50bp hike in May.  The degree of additional tightening beyond that is dependent on the outlook for inflation and inflation expectations, and how the NZ economy responds to tighter financial conditions

Daily Alert: RBNZ delivers dovish 50bp hike while Bank of Canada followed with 50bp lift

14 Apr 2022

• The RBNZ consulted their least regrets manual and hiked the OCR by 50bps to 1.50%, citing the need to move to a neutral stance sooner to reduce the risk of high inflation becoming more embedded. Importantly, the RBNZ did not convey an explicit tightening bias
• Hot on the heels of the RBNZ, the Bank of Canada (BOC) hiked its overnight benchmark policy interest rate by 50bps to 1.0%. The BOC policy assessment was more strident than the RBNZ, signalling further hikes to offset soaring inflation
• Global yields were down while equities and commodity prices rose

REINZ Housing data – March 2022: Higher, earlier = lower & slower

14 Apr 2022

• March REINZ data show NZ’s housing market in full retreat
• As credit tightening and higher mortgage rates hobble demand
• The RBNZ is getting a wriggle on with interest rates so we now see a deeper 8% fall in house price inflation by the end of this year (previously 6%), and only a lacklustre recovery in late 2023

2022 Q1 CPI Preview: Annual NZ CPI Inflation to crack the 7% barrier

14 Apr 2022

• We expect a 2.2% quarterly increase in the headline CPI over Q1, lifting annual headline inflation to 7.3%, its highest rate in more than 30 years. Risks are tilted to the downside for our Q1 pick
• However, annual CPI inflation is expected to remain elevated over 2022 and remain outside the 1-3% target range until probably 2024
• High near-term inflation and stretched capacity warrant the RBNZ hiking by 50bps in May and moving the OCR into restrictive territory beyond that 

RBNZ April Monetary Policy Review: RBNZ hikes by 50 but light on forward guidance

13 Apr 2022

• The RBNZ hiked the OCR by 50bps to 1.50% but was light on future guidance
• The motivation to move rates swiftly was to use a least regrets approach to quickly move the OCR closer to circa 2% neutral levels to reduce the risk of higher inflation becoming embedded
• We have revised up our OCR forecast view and now expect a 50bp hike in May, followed by a sequence of 25bp hikes to a 3.25% OCR peak this cycle. Pre-emptive OCR hikes will reduce the need for hikes further down the track

Quarterly Survey of Business Opinion: An awkward spot

12 Apr 2022

• Q1 QSBO confirms slowing economic momentum, still-intense capacity pressures and soaring prices and costs  
• NZ CPI inflation looks set to remain elevated over 2022 as firms pass on cost increases 
• The OCR needs to move higher. We expect a 25bp hike tomorrow and a 2.75% OCR peak but acknowledge the very strong risk of a larger move and for a swifter and more pronounced pace of RBNZ hikes

March 2022 NZ Electronic Card Transactions: Uneven March for card spending with challenges ahead over 2022

11 Apr 2022

• A mixed March month, but with retail volumes flat in Q1 as Omicron shunts consumers to the side lines
• It’s early days, but there were signs of recovery in non-retail spending as spending patterns start to pivot towards pre-COVID-19 norms
• It is our expectation the retail outlook in general will be challenging over 2022 as headwinds facing the retail sector intensify. Durables retail is looking particularly challenging

RBNZ April Monetary Policy Preview: 50-50 for a 50bp April RBNZ hike

06 Apr 2022

• We are opting for a 25bp OCR hike next week, but the RBNZ could easily hike by 50bps
• The RBNZ is expected to maintain a clear tightening bias and signal it is open to subsequent 50bp hikes if needed
• For now, we are sticking to our call for a sequential path of 25bp hikes and a 2.75% early 2023 peak

Trade Disruptions Update - March 2022

31 Mar 2022

Since December’s perfect storm, we’ve seen yet more cost pressures rain down on Kiwi importers and exporters.

Russia’s war in the Ukraine is creating further disruption on already stretched supply chains and freight costs continue to rise to never seen before heights.

But with signatures still wet on a new UK trade deal and our borders opening up, we hope to see new opportunities on the horizon for kiwis trading abroad.

Our economics and international trade teams have created this note as an update to our Trade Disruptions Report from December 2021. A new complete report will be released in June.

March ANZ Business Outlook: This is getting awkward

30 Mar 2022

• Business sentiment stabilises, at still subdued levels 
• No such luck on cost/inflation measures. We lift our forecast peak in CPI inflation to 7.5% from 7.0%
• April RBNZ decision (+25bps vs. +50bps) increasingly a line-ball call. We stick with 25bps for now

Household Living Cost Outlook: Under Siege

23 Mar 2022

• Cost increases are escalating and becoming increasingly widespread
• Our estimates suggest higher consumer prices and rising interest rates will add an average of $150 per week of costs to household budgets over 2022. Some households will be paying a lot more
• Weakening household balances sheets and higher living costs look set to exert downward pressure on household spending over 2022, likely tempering the extent of OCR hikes needed

Q4 2021 GDP Review: Another comeback, but a bit less springy

17 Mar 2022

• NZ GDP bounced back 3% over Q4, only partially clawing back the hit it took from the Delta wave
• The NZ economy’s resilience through the pandemic has been very impressive, though higher-frequency data suggests growth has moderated over Q1, as the Omicron outbreak has set in
• This quarter’s result isn’t the sort of dramatic overperformance we’ve become used to, and hints at broader headwinds set to deepen

Q4 2021 GDP Preview: A bounce back Jim, but not as we know it

15 Mar 2022

• Like Lazarus with a triple bypass, the NZ economy has once again recovered from a stringent lockdown, clawing back over Q4 most of its lost output
• The NZ economy’s resilience over the past eighteen months has been impressive, but headwinds are mounting, with capacity pressures, rising interest rates and a more cautious household sector set to bite
• Growth over 2022 will be slower and patchier, with a booming construction industry and a cash-splashing household sector set to play less of a role

REINZ Housing data – February 2021: Slow leak

14 Mar 2022

• Property boom continues to deflate
• As prior excess demand evaporates
• We retain our 2022 NZ house price inflation forecast of -6%

February 2022 NZ Electronic Card Transactions: Omicron hit to card spending in February, with more volatility ahead

10 Mar 2022

• Steep February fall in card spending as consumers hunker down amidst the Omicron outbreak. Falls were generalised.
• Further volatility lies ahead, with retail spending likely to fall further in March, with a modest recovery thereafter.
• It is our expectation the retail outlook in general will be challenging over 2022 as headwinds facing the retail sector intensify.  

February ANZ Business Outlook: Under Pressure

28 Feb 2022

• Feb ANZBO survey shows businesses under pressure from all sides 
• Pricing and inflation expectations indicators surged as expected, validating the RBNZ’s more hawkish turn last week
• We still expect the Omicron hit to be brief, with business sentiment to subsequently recover

Q4 2021 NZ Retail Trade Review: Retail rebounds post-Delta, but Omicron hit awaits

25 Feb 2022

• Post-lockdown bounce in Q4 retail volumes, which ended the year just shy of record highs
• Volatility expected to continue, with the Omicron outbreak set to batter part of the retail sector in the first half of 2022, as many consumers hunker down
• Headwinds facing the retail sector should remain after Omicron fades

RBNZ February Monetary Policy Statement Review: Cranking it up

23 Feb 2022

• The RBNZ lifted the OCR 25bp to 1%, though considered the merits of a 50bp lift
• The Statement was ‘hawkish’ with the RBNZ showing signs it is wary of getting behind the curve
• We expect steady 25bp increases to an OCR peak of 2.75% - but the risks are skewed to a faster pace of hikes and a higher OCR endpoint 

RBNZ February Monetary Policy Statement Preview: (Overinflation) Nightmare on Bond Street

18 Feb 2022

• Inflation pressures have just kept on lifting ahead of RBNZ expectations
• Expect the RBNZ to lift the OCR by 25bp, even though you could argue the RBNZ is behind the curve
• Watch for any announcements about how the RBNZ will reduce its bond holdings over time

REINZ Housing Data - January 2021: House price slowdown arriving earlier, we trim forecasts

15 Feb 2022

Q4 2021 Labour Market Data Review: Labour market set to tighten further in 2022

02 Feb 2022

• The unemployment rate ends 2021 at a record low, with employment above its maximum sustainable level. Wage growth was more moderate than expected
• The labour market is biased to tighten further and wage pressures escalate over 2022 and we expect inflation to remain persistently high
• We now expect the OCR to peak at 2.75% in early 2023, with both upside and downside risks to the interest rate outlook

Q4 2021 Labour Market Data Preview: Labour market set to tighten further in 2022

28 Jan 2022

• The Q4 2021 figures are expected to show a tightening in labour market conditions, with sluggish employment growth, but the unemployment rate and wider underutilisation measures printing around record lows
• Annual wage growth is expected to hit its highest rate in more than a decade, given the tight labour market and rising cost of living. Accelerating nominal wage growth is on the cards for 2022, but this will likely be outstripped by high inflation
• The Omicron outbreak in early 2022 will be disruptive for the labour market and, while its impacts are assumed to be temporary, it will place additional strains on already-stretched labour market capacity and wage inflation

2021 Q4 NZ Consumers Price Index Review: Annual CPI inflation set to top 6% in early 2022

27 Jan 2022

• Q4 NZ CPI was above market and RBNZ expectations, with annual CPI inflation a shade below 6% but still the highest in more than 30 years. NZ inflation looks set to crack the 6% annual inflation mark early in 2022
• High NZ inflation does not look to be transitory.  A broadening front of rising inflation is emerging that will be difficult to slow
• The RBNZ clearly has more work to do, with today’s Q4 2021 CPI print raising the odds of a faster pace of OCR hikes and a higher OCR endpoint than the RBNZ’s ‘considered steps’ mantra

What to look out for in 2022

20 Jan 2022

• Here we outline five key things to watch out for in 2022
• COVID-19 will continue to set the narrative
• Our hope is for a better 2022 but we are wary

December 2021 NZ Electronic Card Transactions: Flat December for card spending, with cautious signs for 2022

19 Jan 2022

• Flat outturn for December card spending following strong rises in October and November.
• Card spending up around 7.5% in Q4, as consumer spending rebounds from the Q3 Delta slump.
• The risk of an Omicron outbreak in NZ, stock shortages, rising consumer prices, higher interest rates and receding housing market tailwinds point to a cautious 2022 for retail.

NZIER Quarterly Survey of Business Opinion Q4 2021: Labour and supply shortages intensify

18 Jan 2022

• The Q4 NZIER Quarterly Survey of Business Opinion revealed a further tightening in labour market conditions.
• Inflation pressures also remain acute, with annual CPI inflation likely to lift to over 6% in Q4.  
• Labour shortages, global supply chain disruptions and elevated inflation pressures are likely to remain persistent challenges through 2022.

REINZ Housing data – December 2021: New year, new market

18 Jan 2022

• December figures confirm the housing boom ended in 2021
• As supply and demand brought rapidly back into balance
• One month does not a correction make, but December data still weaker than expected

GDP Q3 2021 Review: Delta hits Q3 GDP, but damage less than earlier feared

16 Dec 2021

• NZ GDP contracted 3.7% qoq over Q3 2021 largely due to the COVID-19 Delta outbreak which sent NZ back into Alert Level 4 lockdown, hampering non-essential business activity.
• The size of the fall was close to our final forecast and market expectations, although it was considerably less than the decline experienced during the first Alert Level 4 lockdown over the first half of 2020.
• Once again, the NZ economy has demonstrated remarkable reliance in the face of COVID-19 and we expect NZ economic activity will return to pre-Delta levels over the first half of 2022.

NZ 2021 Half Year Economic and Fiscal Update: HYEFU depicts resilient fiscal outlook

15 Dec 2021

• The HYEFU revealed a resilient economic outlook and improved trajectory for the public finances: lower government borrowing, the eventual return to OBEGAL surpluses in 2023/24 flagged, and lower Crown borrowing. 
• The HYEFU reaffirmed the need for ongoing fiscal policy support considering the highly uncertain outlook, with higher Crown expenditures maintained over the forecast profile. 
• Time will tell whether the Government has struck the right balance between meeting short-term demands and preparing for future economic and fiscal challenges. 

REINZ Housing Data November 2021: Shifting through the gears

13 Dec 2021

• November data allow more confidence in the fact the housing market has turned
  
• Housing supply is now, finally, rising to meet demand
  
• Supporting our forecasts for a sharp slowing in house price inflation next year

GDP Preview Q3 2021: Delta’s damage could be relatively moderate

10 Dec 2021

• We expect Q3 GDP declined 3.3% due to the Delta community outbreak; our final forecast suggests GDP declined by much less than experienced in the 2020 Alert Level 4 lockdown.
• Economic data released over recent weeks suggest that activity held up much better than we had expected, supported by strong momentum prior to the outbreak and possibly a stronger-than-expected regional performance under Alert Level 2 settings.
• Ultimately, it’s not the size of the fall that matters, but how quickly activity returns to pre-Delta levels.  We expect this to be sometime over the first half of next year.

Sizeable November gain, but 2022 retail outlook cloudy

10 Dec 2021

• Continued recovery from lockdown lulls, with a Black Friday boost for apparel and durable spending
• Card spending on track to expand in the region of 12% in Q4 as restrictions are eased and the economy bounces back from Q3 delta slump. This buoyancy should continue heading into early 2022.
• Beyond that, still-present COVID-19 restrictions, stock shortages, rising consumer prices, higher interest rates and receding housing market tailwinds should temper household spending activity.

Trade Disruptions: December 2021

09 Dec 2021

COVID-19 has had two major effects on global trade.

Firstly, it has confined the world's population to their homes, leading to a huge increase in online buying from around the world. Government stimulus has boosted people's ability to buy more online as other pastimes and expenses such as travel and entertainment have been curtailed.

Secondly, it has also forced the closure of factories, constrained labour and put more pressure on how goods are moved domestically and internationally.

The combination of these factors has created the perfect storm for major disruption to supply chains, which we expect to continue well into 2022.

Our economics and international trade teams have created this report to help business and industry better understand these changes and the drivers behind them. We also give our forecasted view of the potential resolution of these challenges. In doing so, we hope to help business and industry plan, steer into challenges and weather the storm.

Q3 Terms of Trade: Get on high

02 Dec 2021

• NZ’s terms of trade hit a new record high in Q3, but the pace of gains slowed.
• A fall in dairy exports drove overall export volumes lower, while import volumes proved resilient.
• We expect higher import prices to drive NZ’s terms of trade lower over the coming quarters but expect it to remain elevated.

RBNZ November 2021 MPS Review: Considered Steps

24 Nov 2021

• The RBNZ lifted the OCR by 25bps to 0.75% and signalled lifting the OCR in “considered steps” over 2022.
• The outlook is still inherently uncertain and fluid, though against that inflation pressures are steadily building.
• The RBNZ flagged an OCR end-point around 2.6%.  This is consistent with our view that the recent run-up in market pricing and NZ yields had gotten too far ahead of itself.  

2021 Q3 NZ Retail Trade Review: Lockdown hit to Q3 retail not as bad as feared

23 Nov 2021

• Hit to Q3 retail volumes with overall activity hitting a brick wall as the economy went into lockdown from mid-August.  The fall was not as sharp as feared and highlights NZ’s economic resilience.
• Hospitality and tourism retail hardest hit, with the prolonged lockdown hammering Auckland retail.
• We expect a Q4 bounce in retail activity, but remain more circumspect on the outlook for retail activity in 2022.

RBNZ November Monetary Policy Statement Preview: Catch-up footy

18 Nov 2021

• Inflation pressures are rampant and the RBNZ is playing catch-up.
  
• A 50bps OCR hike next week is a strong risk, but we (just) maintain our call for +25bps.
  
• The Bank needs the market to keep doing its work for it. So we expect a hawkish Statement and OCR projections to be lifted to show a terminal OCR on the tighter side of ‘neutral’.

REINZ Housing Data – October 2021

11 Nov 2021

• Another strong month for NZ’s housing market, albeit with an Auckland bounce over-inflating the headline numbers a little
  
• Some signs excess-demand pressures are abating
  
• We continue to forecast a material slowing in house price inflation for next year

Mind the gap – NZ housing shortfall a little bit smaller

11 Nov 2021

• NZ’s cumulative housing shortage declined as expected over the past year.  But more of this shift came from Auckland than we had expected, while housing shortages outside of Auckland fell by less than expected.
• We believe Auckland and NZ’s cumulative housing shortfall will be met in around 12 months’ time.
• This suggests that high rates of construction activity cannot be sustained beyond 2022 without a very strong recovery in net migration and population growth.

October 2021 NZ Electronic Card Transactions: October lift, with more to come heading into summer

09 Nov 2021

• Solid October bounce in October card spending following weak August and September, with the result in line with ASB expectations.
• Card spending on track to expand in Q4 as restrictions are eased and the economy bounces back from Q3 delta slump.
• Continuing COVID-19 restrictions, stock shortages, higher interest rates and high consumer prices should temper subsequent household spending activity and the extent of OCR hikes needed.
  

Q3 2021 Labour Market Review: Employers hold onto staff through lockdown

03 Nov 2021

• The unemployment rate fell by much more than expected, plunging to 3.4% in Q3 2021 from 4%. The labour market continued to tighten despite the community COVID-19 outbreak and Alert Level 4 lockdown.
• Employment jumped higher, also much stronger than expected.  Firms appear to be willing to hire/hold onto staff even if they were unable to work during Alert Level 4 restrictions.    
• Wage inflation is starting to lift and the very tight labour market and rising cost of living will drive wage inflation higher still over the coming year.

RBNZ survey reinforces shifting credit trends

01 Nov 2021

• Credit demand continues to firm overall, but limited appetite for capex funding suggests caution still abounds.
• Sectoral differences becoming more apparent in credit availability metrics.
• Banks report strong appetite for corporate and agricultural lending. By contrast, the credit cycle in all things property appears to be in the twilight phase.

Labour Market Data Preview Q3 2021: A glance back to pre-Delta times

29 Oct 2021

Q3 wage growth is likely to be very strong, with risks skewed to a larger-than-expected increase.  The tight labour market, rising cost of living and increased inflation expectations will continue to put upward pressure on wages.

Measurement challenges due to lockdown will impact the insights we can take from the Q3 labour market data.  The impact of the Alert Level 4 on HLFS employment will be difficult to interpret.  Meanwhile, the QES data can confirm how strong the labour market was prior to the community outbreak of COVID-19.

Even if the labour market softens somewhat over the second half of 2021, it will most likely bring the balance of labour market conditions from extremely tight, to still somewhat tight.

Inflation Watch and the OCR

21 Oct 2021

• Annual CPI inflation will reach close to 6% at the end of this year and is likely to remain persistently elevated well into 2022.
• We have revised up our interest rate forecasts, with the OCR to peak at 2% in late 2022 (previously 1.5%).
  
• Going forward, we will be keeping close tabs on the labour market and inflation anchors for signs of a concerted shift.

2021 Q3 CPI Review: Annual CPI inflation on track to top 5% over 2021

18 Oct 2021

• Consumer prices surged 2.2% in Q3, pushing annual CPI inflation to a new decade high of 4.9% and considerably above ASB, market and RBNZ expectations. 
  
• ASB expects annual headline inflation to move above 5% by the end of the year. There is the clear risk that high inflation outcomes persist well into 2022 (and likely beyond that).
• The path of the OCR is largely contingent on the economic scarring caused by the ongoing restrictions to contain the spread of COVID and whether inflation expectations and other inflation anchors become unstuck.

2021 Q3 CPI Preview: The Big Bounce

13 Oct 2021

• We expect a 1.7% Q3 increase in headline CPI, lifting annual headline inflation to 4.4% – its highest in a decade.
• Annual CPI inflation looks set to move above 4.5% by the end of the year and remain outside the 1-3% target range until well into 2022, with the risk of a more prolonged overshoot.
• With high inflation running the risk of being entrenched, more OCR hikes are needed over time. However, the RBNZ will likely tread carefully and in small steps.

Business Sentiment in October: Auckland businesses unnerved by COVID challenge

13 Oct 2021

• Business sentiment remains resilient, despite the prospect of Auckland remaining under L3 restrictions for the next 4-8 weeks. 
• Cost and inflation pressures remain uncomfortably high.
• RBNZ to cautiously remove monetary stimulus, returning the OCR to 1.5% by the end of 2022.

Soft September lift in card spend, with Q4 retail rebound to be tempered by delta drag

12 Oct 2021

• Tepid September rise in card spending off depressed August levels.
  
• Card spending down in Q3, pointing to a large quarterly contraction in retail activity and GDP.
  
• High alert levels and stock shortages should temper the rebound in household spending. The OCR is likely to continue to gradually move up, nonetheless.

RBNZ October OCR Review: Up, up and away

06 Oct 2021

• The RBNZ lifted the OCR by 25bps to 0.50% at today’s Monetary Policy Review.
• The focus is firmly on the medium-term outlook, with the ongoing lockdown not seen as materially shifting that.
• We expect the OCR to rise in November and February, eventually reaching 1.5%.  But COVID could temper that.

RBNZ October Monetary Policy Review: The moment we've all been waiting for

01 Oct 2021

• The RBNZ is very likely to lift the OCR by 25bps to 0.50% at next week’s Monetary Policy Review.
• Much of the increase has already been priced into wholesale and retail rates.
• NZ interest rates will continue to head higher from here, though we expect them to peak at historically-low levels after a cautious tightening cycle by the RBNZ.

Business Sentiment September: Businesses resilient but upside inflation risks remain

30 Sep 2021

• Overall business sentiment and key activity metrics from the ANZ survey remain resilient, but off their June peaks.
• Cost and inflation pressures remain stubbornly high.
• We are hoping that the economy will swiftly bounce back from its delta dip, but with COVID-19 still in the community we will have to wait and see.
  

COVID responses, choices, and economic influences

24 Sep 2021

• NZ’s Delta outbreak and latest lockdown raise questions about the way forward.
• Lockdowns are costly and increasingly unsustainable, vaccinations offer the way out.
• Society’s choices for elimination, border restrictions, and freedoms for the vaccinated will shape industries.

Household Sector Outlook: Prepare for higher interest rates

23 Sep 2021

• We expect the OCR to move up soon, taking mortgage interest rates with them. Uncertainty is pronounced, but a historically low peak in average mortgage interest rates is expected this cycle.
• Moderately higher interest rates are unlikely to derail the household sector, but the RBNZ will remain watchful.  
  
• Borrowers should budget and prepare for higher interest rates.

Q2 2021 GDP Review: Strong NZ growth momentum prior to lockdown

16 Sep 2021

• NZ real GDP expanded at a robust 2.8% qoq pace over Q2, confirming the NZ economy had considerable momentum prior to the more recent community COVID-19 outbreak. There were positive revisions to the level of GDP, with the magnitude of the 2020 Q2 dip and Q3 rebound revised a touch lower.
• The Q2 figures look increasingly dated given more recent events. The most recent lockdown is set to add further volatility to GDP figures through the remainder of the year. Uncertainty is high, but we expect the sharp Q3 dip to be short-lived and followed by a strong Q4 rebound.
• We expect the RBNZ to ‘look through’ near-term volatility and reduce monetary stimulus, with a series of 25bp hikes starting from next month. We envisage a gradual path of OCR hikes and a low 1.50% OCR endpoint.

REINZ Housing data - August 2021

14 Sep 2021

• Housing market sails through August lockdowns
• Still no evidence rate of house price inflation is slowing
• Two-pronged response likely from RBNZ in October

Business Confidence September: Businesses defiant in the face of Delta

13 Sep 2021

• Business sentiment resilient in the face of Delta, and points to a strong bounce back in economic activity once Alert Level restrictions are eased.  
• Business optimism may still slip once the full survey results are released, as Auckland’s Alert Level 4 drags on.
• Cost and inflation pressures remain elevated, although may be starting to turn a corner.

Lockdown hit to card spend (hopefully) expected to be short-lived

10 Sep 2021

• August card spending plummets as NZ enters lockdown. Given the timing of the lockdown, August falls were not as sharp as in the April 2020 lockdown. Consumable retail spending was again the major standout.
• The relaxation in restrictions in much of the country and hopes that Auckland will soon follow suit point to a swift rebound in card spending. Despite this, a large Q3 contraction in retail activity and GDP looms
• Looking though the near-term volatility, the household sector is in generally solid shape, with a robust medium-term outlook for household spending. We expect OCR hikes from next month as the RBNZ looks though near-term weakness and focuses on the positive medium-term economic outlook and rising inflation.
  

Q2 2021 GDP Preview: Strong momentum before the outbreak

10 Sep 2021

• We expect Q2 GDP lifted 1.5% over the quarter, although uncertainty around quarterly GDP growth outcomes is higher than usual given large market median forecast errors over the past year.
• If a strong lift in Q2 is confirmed, then the NZ economy had considerable momentum prior to the current community COVID-19 outbreak, reinforcing the need for the RBNZ to start lifting the OCR once the Delta crisis has passed.
• We expect the Delta outbreak to reduce Q3 GDP by 6-7%, but for the economy to quickly bounce back as it has done in the past.

Riding out the (lockdown) storm

03 Sep 2021

• The current lockdown/tightening of Alert Level restrictions will cool strong momentum in household sector activity.
• COVID-19 adds uncertainty to the outlook, but firms and households have been here before.
• Provided the lockdown does not drag on, we expect a strong post-lockdown bounce in household spending and overall GDP. Households should prepare for higher borrowing costs.

The household sector has been at the forefront of the domestic post-COVID-19 expansion. The combination of strong household balance sheets, increasing household incomes, record low average interest rates for the household sector and Kiwi’s love affair with property and durable spending has been in evidence. This has resulted in a strong momentum in economy-wide household spending and economic overheating, notwithstanding the significant post-COVID-19 hit to many NZ firms and households.

The recent delta variant outbreak and subsequent lockdown have cooled things down. A number of households will bear the brunt. Uncertainty is high, but firms and households have been through this before and are generally resilient. Providing the lockdown is short-lived (weeks rather than months), our view is that household spending will be temporarily dampened, followed by a decent rebound.  Households should prepare for higher borrowing costs.

NZ Terms of Trade Q2 Review: Back around record highs

02 Sep 2021

• NZ’s terms of trade headed higher at a strong clip over Q2, supported by rising commodity prices. 
• There’s little sign thatconstrained shipping capacity is limiting export and import volumes.
• We expect NZ’s terms of trade to remain well supported over the medium term.

Q2 2021 NZ Retail Trade Review: Strong retail sector momentum continues heading into lockdown

24 Aug 2021

• Stronger-than-expected lift in Q2 retail volumes to fresh record highs, with the consumer driving the domestic expansion.
• Trans-Tasman bubble boost and strong durable retail evident.
• A Q3 pullback in retail trade activity is highly likely given the delta variant outbreak in NZ. We are hoping the dip is short-lived and have pencilled in a strong retail rebound by the end of the year.

RBNZ August Monetary Policy Statement Review: Lockdown prompts RBNZ to pause for now

18 Aug 2021

• The RBNZ kept the OCR on hold, as we had expected at the 11^th hour.
• The current COVID outbreak was the reason to remain on hold – otherwise it was clear the RBNZ intended to lift the OCR at an orderly pace starting from today.
• Assuming the outbreak is stamped out relatively soon, we expect the RBNZ to start lifting the OCR from October.

RBNZ OCR COVID RESPONSE: RBNZ likely to pause given COVID community case

18 Aug 2021

• We expect the RBNZ will opt to keep the OCR on hold on Wednesday August 18, rather than lift it.
• A suspected community delta COVID case (and 4 infections linked to it so far) and the snap Level 4 lockdown mean the RBNZ is making a decision in the blind about the extent of the outbreak.
• Assuming the lockdown is relatively short, we’d expect the RBNZ to lift the OCR from October.

REINZ Housing data – July 2021: The Song Remains the Same

12 Aug 2021

• NZ housing boom rumbles on.
• But we continue to expect the market to cool.
• We expect the RBNZ to lift the OCR next week and for mortgage rates to keep rising.

RBNZ August Monetary Policy Statement Preview: The fastest gun in the West

12 Aug 2021

• The latest economic data show inflationary pressures lifting dramatically and the labour market strengthening.
• The balance of risks has shifted and the ‘least regrets’ approach for the RBNZ is now to begin hiking sooner rather than later.
• We now expect the RBNZ to lift the OCR by 25bp to 0.50% at next week’s August Monetary Policy Statement, with the OCR rising to 1.00% by the end of the year.

July 2021 NZ Electronic Card Transactions: Benefit boost for July card spending

10 Aug 2021

• July card spending registers solid increases, likely helped by rising income support payments.
• Spending growth accelerates to a 6% to 7% 3-monthy pace as consumers continue to drive the domestic expansion.
• Despite the prospect of higher interest rates, we remain positive on the outlook for retail spending.

Q2 2021 Labour Market Data Review: Labour market tightens more than expected

04 Aug 2021

• Unemployment rate falls by more than expected, drops to 4%.  The underutilsation rate also falls sharply.
• Wage inflation picked up by more than expected, reflecting the tight labour market.
• The labour market is at maximum sustainable employment – the RBNZ needs to lift the OCR off emergency levels.

Q2 2021 Labour Market Data Preview: Time to ask for that pay rise

28 Jul 2021

• Focus of the Q2 labour market data will be on wage inflation and the RBNZ’s indicators of labour market utilisation.
• We expect Q2 LCI wage inflation to lift by 0.8% over the quarter, up 2.1% over the year. Wage pressures are set to continue to increase over the coming year.
• The RBNZ will also be watching the Q2 HLFS labour market underutilisation rate and the unemployment rate of 20–24-year-olds as confirmation that there is reduced slack in the labour market.

2021 Q2 CPI Review: Q2 CPI skyrockets, with annual inflation to move higher

16 Jul 2021

• The Q2 CPI was much stronger than ASB, RBNZ and market expectations. Both tradable and non-tradable CPI prices were much, much firmer than RBNZ expectations.
• Annual inflation from the core measures surged above 3% and looks set to move higher.
• Looking ahead, we expect annual headline inflation to approach 4% in the second half of this year, with the risk that high inflation outcomes persist well into 2022. OCR hikes are coming very soon.

RBNZ ready for rates take-off

14 Jul 2021

The RBNZ kept the OCR unchanged (as expected) but – significantly – will halt asset purchases by July 23^rd.

The RBNZ has agreed that “stimulus could now be reduced to minimise the risk of not meeting its mandate”.

An August rate hike looks more likely than not – if key upcoming data confirm that pressures are building.

REINZ Housing data – June 2021: Winter warmer

13 Jul 2021

• Slowing in house price inflation continues, at a glacial pace.
• But activity indicators suggest market remains as tight as ever.
• Market still not slowing as rapidly as most expect, but higher mortgage rates could change the game.

2021 Q2 CPI Preview: Persistently higher inflation becoming more difficult for the RBNZ to look through

13 Jul 2021

• We expect a 0.8% qoq increase in Q2 headline CPI, lifting annual headline inflation to 2.8% – its highest in a decade and with upside risk.
• Annual CPI inflation looks set to move above 3% over the second half of this year and remain stuck well above 2% next year due to a combination of cost shocks and increasing capacity pressures.
• With inflation set to settle above the midpoint of the 1-3% inflation band and with the economy at (or close to) full employment, we expect the RBNZ to hike the OCR before the end of the year (likely November).

June 2021 NZ Electronic Card Transactions: Card spending accelerates in June quarter as consumers support the expansion

12 Jul 2021

• June card spending continues its strong recent run, buoyed by strong hospitality and services retail.
• Spending up 4.5% to 5.5% over the June quarter for total and retail spending as consumers continue to support the expansion. Some of the increase looks to have been due to higher prices.
• We remain positive on the outlook for retail spending and the economy in general over 2021. OCR hikes are coming.

RBNZ July Monetary Policy Preview: Fast and Furious: ’21

08 Jul 2021

• Since the RBNZ’s last MPS, inflationary pressures and capacity problems have continued to dramatically intensify.
• We now expect the RBNZ’s first post-COVID rate hike to come in November 2021.
• We expect the RBNZ to remain cautious, even as it hikes, with the pace of further OCR hikes to be gradual.

Capacity update: Tight and getting tighter

08 Jul 2021

• Our estimates of starting point capacity pressures suggest that the NZ economy is effectively at (or close) to full employment.
• Largely as a result of labour shortages, capacity constraints are also becoming more widespread and are no longer the sole domain of a few key pockets of the NZ economy.
• Pressures on labour market and broader economy-wide capacity look set to tighten further, firming wage and underlying price pressures. The time for emergency policy settings has passed and OCR hikes are coming soon.

QSBO Q2 2021 - Inflation pressures hit rapid boil

06 Jul 2021

• Q2 QSBO confirms extreme labour market capacity pressures, suggesting strong lift in wage inflation.  
• Inflation set to lift strongly over the coming year; in aggregate firms appear able to pass on cost increases.  
• Stronger wage growth coupled with generalised CPI increases are a risky mix for the RBNZ, we expect the RBNZ to start normalising the Official Cash Rate from November this year.

Housing insights: Can we cope with higher mortgage rates?

29 Jun 2021

• We find households in aggregate have plenty of buffer to cope with higher mortgage rates. Household gearing and mortgage serviceability metrics are at low levels.
• But there are some sensitive spots, such as new entrants to the housing market. There’s also a bit of re-set risk out there – 77% of all mortgage debt is on fixed-rate terms of less than a year.
• At a macro level, the RBNZ will get more bang for its buck when interest rates eventually do rise. Higher mortgage rates are also a key factor behind our view house price inflation will slow down from here.

NZ economy sizzles through summer

17 Jun 2021

• Q1 GDP lifted by more than expected, up at whopping 1.6% over the quarter, compared to market expectations centred on a 0.5% lift.
• The strength in Q1 was broad-based across domestic demand, with strong lifts in household spending, business investment and Government spending.
• Stronger than expected domestic demand, coupled with growing cost pressures, are a potent mix for inflation pressures.  We currently expect the RBNZ to start normalising interest rates in May 2022, but risks are now very firmly skewed to an earlier move.

REINZ Housing data May 2021: Shifting sands

15 Jun 2021

• More records for NZ house prices in May, even as sales activity continues to (slowly) cool.
• The ship is turning slowly.
• We lift our 2021 house price forecasts, but tab down 2022.

GDP Preview Q1 2021 - Spending spree lifts economy

11 Jun 2021

• We expect Q1 GDP lifted 0.8% qoq, as strong spending by NZ households likely offset the absence of spending by international tourists.
• We expect strong construction activity also supported GDP growth, meanwhile delayed international shipments in late 2020 likely shifted economic activity from Q4 2020 into Q1 2021.
• NZ GDP remains surprisingly volatile and difficult to forecast, we are braced for the possibility of further revisions or unexpected outcomes. 

May 2021 NZ Electronic Card Transactions: May spending surprises but higher retail prices may be the catalyst

10 Jun 2021

• May card spending continues to surprise to the upside, demonstrating the resilience of the NZ consumer.
• It may, however, reflect the impact of higher retail prices which is likely to be weighing on the purchasing power of consumers.
• We remain positive on the outlook for retail spending over 2021, which will continue to support the NZ economy. However, rising retail prices and escalating costs may dampen the retail rebound we see unfolding.

Inflation Watch: Will the perfect storm intensify?

10 Jun 2021

• ASB expects annual headline CPI inflation to rise to around 3% by the end of 2021 as cost shocks and demand pressures from selected pockets filter through into consumer prices. Annual headline Inflation is then expected to settle in the mid-2’s as some transitory influences fade.
• Not only will annual CPI inflation likely peak at a higher rate than the RBNZ expects, but it also looks set to remain persistently higher. This could bring forward the timing of OCR hikes.
• We will be keeping close tabs on surveyed inflation expectations, capacity gauges and other indicators of pricing pressures.

Q1 Terms of Trade: Plot twist

02 Jun 2021

• NZ’s terms of trade were little changed in Q1, remaining at historically high levels.
• Export and import prices both fell in a rather surprising development, but we are sceptical the trend will continue.
• There is little sign of freight disruption crimping import activity just yet – but for how long?

Residential Building Consents and Construction Sector Capacity

01 Jun 2021

• Residential building consent demand remains strong.
• However, evidence is mounting that the construction sector is severely capacity constrained.
• The construction output will struggle to meet demand and we expect construction inflation to surge over the coming year.

Business Sentiment in May: Turning up the heat

31 May 2021

• Business sentiment measures point to firming demand and strong GDP growth over Q2 2021, with ANZ business own activity expectations slightly above decade-averages in May.
• Cost pressures continue to drive pricing intentions to record high levels.
• Cost pressures coupled with a strong demand back drop are a recipe for inflation pressures to pick up on a persistent basis.

RBNZ May Monetary Policy Statement: RBNZ adjusts its tone, ASB brings forward OCR view

26 May 2021

• The RBNZ has all its key policy settings unchanged but struck a less dovish tone at today’s monetary policy review.
• The RBNZ dropped its explicit commitment to cut the OCR further and published an OCR track signalling rate hikes from the latter half of 2022.
• We have brought forward our OCR view and now expect the first OCR hike to come a little earlier in May 2022 (instead of August 2022).

Q1 2021 NZ Retail Trade Review: Resilient retail keeps NZ economy afloat

24 May 2021

• Much stronger than expected lift in Q1 retail volumes, which are hovering around record highs.  We no longer expect a Q1 dip in GDP, with the consumer keeping the NZ economy afloat.
• The strength was generalised, with few signs of supply disruptions impacting retail activity or boosting retail prices. Durable retail was particularly strong.
• While a Q2 pullback in retail trade activity is possible, we retain our positive outlook for retail volumes over the remainder of the year.

RBNZ May Monetary Policy Statement Preview: The virtues of keeping your options open

24 May 2021

• Since the RBNZ’s last MPS, the economic outlook has continued to brighten, and inflation pressures continue to mount.
• Nevertheless, we expect the RBNZ to keep a cautious tone, emphasising the uncertainties remaining.
• Policy settings should remain on hold, and we still expect the RBNZ to refrain from lifting the OCR until August 2022 at the earliest.

Budget 2021 Review - It's time to deliver

20 May 2021

• Budget 2021 showed an improved NZ economic and fiscal outlook, with smaller operating deficits, a lower peak in crown debt and a modestly scaled-back NZ Government bond programme compared to previous COVID-era updates.
• The stronger fiscal position leaves the Government with more policy options. Rebuilding the economy and enhancing wellbeing have been given top priority. Operational and capital allowances for government spending have been increased, albeit modestly, with government spending expected to decline as a share of GDP over the projection period.
• The Government have committed to rebuilding the economy and enhancing societal and economic wellbeing. Massive investments are signalled. It will take time to assess whether this will pay dividends.  

NZ Budget 2021 Preview: Striking the right balance

14 May 2021

• The NZ economy and public finances have held up much better than earlier thought and we expect Budget 2021 to show smaller forecast fiscal deficits, a lower peak in Crown debt and an associated scaled-back NZ Government bond programme.
• The focus is turning increasingly towards a more targeted and fiscally prudent message. Delivering on this will not be easy.
• Longer-term fiscal challenges also remain, with the Government expected to signal an enhanced focus on converting policy intent into action and results. The proof will be in the pudding.

REINZ Housing data April 2021: Resilient to change

13 May 2021

• April REINZ data betray first signs of property market cooling.
• But fall in sales likely overstated, and supply is as tight as ever.
• Supports our view the market is holding up. There’s already upside on our updated forecasts.

April 2021 NZ Electronic Card Transactions: April boost to retail and we remain positive on the retail outlook

11 May 2021

• Strong lift in April card spending, with favourable base effects sees a close to doubling in annual spend.
• Tentative signs of a Trans-Tasman bubble and school holiday boost.
• After a slow start to the year, we remain positive on the outlook for retail spending over 2021, which is likely to continue to support the NZ economy. However, the retail sector outlook includes both tailwinds and some headwinds.

RBNZ May Financial Stability Report: Holding pattern

05 May 2021

• Similar financial system assessment: sound but vulnerabilities remain.
• Initial thoughts on other potential macro-prudential measures: RBNZ favours debt serviceability measures.
• RBNZ ready to act further if housing-related risks remain, but in wait-and-see mode given recent policy moves.

Q1 2021 Labour Market Data Review: Labour market firmly on the road to recovery

05 May 2021

• The unemployment rate fell by more than expected in the March quarter, to 4.7%.  The market median expectation was for the unemployment rate to remain unchanged at 4.9%.
• Employment lifted by more than expected, up a robust 0.5% over the quarter.
• Annual wage growth was steady, and is poised to lift over the coming quarters.