Articles

The freefall in oil prices over recent months has given people the shivers – and not just oil producers!  There is a fear that this drop in prices is the harbinger of another international economic crisis.  In this article, we look at the reasons for the decline and try to figure out whether lower oil prices are suggesting a crisis is on the cards.

Slowing Chinese growth has been in the headlines, but the real story is one of an entire supply chain that is struggling.  In this article, we will discuss some of the countries that have failed to pick up China’s slack, and examine whether the Chinese slowdown is still an issue of rebalancing, or if matters have turned into a crisis.

No-one has been quite sure how to respond to the sharp fall in the unemployment rate – with most analysts pretending it just didn’t happen.  In this article we investigate what happened and what the labour market data is telling us.

Although it has been a quiet week for New Zealand economic data, the global economy has remained far from quiet.  Concerns about China, slumping commodity prices, and low global inflation have led to rising calls for monetary policy stimulus around the world – with some analysts going as far as suggesting the US Federal Reserve should reverse its December hike in interest rates and consider more quantitative easing.  However, we suspect that analysts are misdiagnosing the issue at the heart of the current global slowdown – an issue that additional monetary policy easing is unlikely to solve.

Over the past two weeks Statistics NZ has released data that undermines the relatively pessimistic view of the December quarter that had dominated markets.  Last week the labour market data indicated that unemployment was significantly lower than anyone had anticipated.  And this week, significant revisions to electronic card sales data indicated that households have been spending more heavily on durable goods than had previously been reported.  With households starting to flex their consumption muscle at a time when population growth is at a record high, the demand pressures the Reserve Bank desires may be starting to appear.

With summer holidays now truly behind us, this week saw a flood of new data turn up. Westpac’s Employment Confidence Index (ECI), the NZIER’s Quarterly Survey of Business Opinion (QSBO), the Consumers Price Index (CPI), and the REINZ’s real estate statistics all came out this week. Add to that data the latest GlobalDairyTrade auction with another fall in dairy prices, and the recent decline in oil prices, and there are a lot of new facts to wade through when thinking about the state of the New Zealand economy. Although this data hasn’t changed our central view of where New Zealand will head in 2016, it does suggest that the risks around this view have changed.

Consumer spending will grow at a historically average rate during 2016. However, averages can be misleading, with the composition of spending changing significantly over the year ahead. Low dairy prices, rising unemployment, and weak wage growth are expected to see consumers tighten their belts during 2016 – with individual consumers unwilling to spend in the face of job insecurity and limited income growth.

Weakening confidence, drought, low dairy prices, and a lull in investment are all shocks being experienced by the New Zealand economy, and are all factors that would normally be associated with a recession. As established in our recent forecasts, we do expect these factors to lead to lower spending by households and a near stalling in economic activity per person over the next year. However, the saving grace for the overall economy is the growth in the number of people who will be in New Zealand – both permanently and temporarily.

The potential growth rate for production by the New Zealand economy has shifted in recent years due to changes in labour and capital markets.  In this article we discuss why potential output expectations are now higher than they were in September 2012 – the last time we went through the capacity of the New Zealand economy to grow in detail.

The spectre of a financial crisis in China has returned with vengeance.  In this article we evaluate some of the evidence that suggests a financial crisis is possible, and what indicators will provide an early sign if any such crisis does occur.