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Recent releases

Pushing out the peak in car sales Car sales remained elevated in August, with first-time registrations of used imports sitting 6.8% higher than a year earlier and new car sales increasing 9.4% over the same period. Sales growth has shown some signs of slowing, but the sales peak we have been forecasting now looks set to occur later in the year. Read more

Disappointing Canterbury limits growth in construction The volume of building work put in place rose 1.6% over the June quarter, but the annual growth rate of 3.4% in activity was well short of the 6.8% growth we were forecasting. Both residential and non-residential activity fell short of expectations, with activity in Canterbury particularly disappointing. Read more

Commentary

Ups and downs Compared to last week, the outlook for the New Zealand economy has improved marginally.  While global growth drivers are less certain, there are promising signs that New Zealand’s export returns are picking up, with dairy prices bottoming out and strong growth in services and other goods exports.  As a result, we expect that Reserve Bank will make a 25 (rather than a 50) basis point cut to the official cash rate next week.  Read more.

Time to panic? This week market volatility reappeared in force.  Previously we have stated that events in China posed a risk to the economic outlook in New Zealand, but that the lack of rising credit default spreads and market volatility suggested that matters would be contained.  However, everything changed sharply this week.  So is it now time to declare a new global economic and financial crisis, or is this just a natural adjustment in overinflated share values in many countries over the past year? Read more.

Are dairy farmers out of the woods? The sharp 15% lift in dairy prices at the GlobalDairyTrade auction on Wednesday night came as no surprise, with futures prices on the NZX having pointed to a significant bounce following a 9.3% plunge at the previous GDT auction.  Nevertheless, even factoring in this latest result, there is still some ground to make up before we can be confident that Fonterra’s $3.85/kgms price forecast can be met by season’s end.  If spot prices and the exchange rate stayed at their current level, then the payout would be closer to $3.50/kgms. Read more.

Latest Forecasts

Overhauling the economic growth menu

The New Zealand economy has drawn praise from connoisseurs around the world over the past year, with a perfect balance of ingredients pushing GDP growth above 3%pa. Migrants have come from far and wide to sample our fare, while bubbles have continued to flow on the party circuit for construction and housing market participants. Although the regions have kept the pantries well stocked with fresh primary produce, critics claim that our dairy products will struggle to cut it against a growing supply of European milk, and so must now be priced down accordingly. Given these low dairy prices, at a time when growth in residential building consent numbers in Canterbury is being removed from the menu, economic growth is set to cool. We forecast that GDP growth will reach an eight-year high of 3.7%pa in the September quarter, but be turned down to a simmer after that.