Candidates' last chance to critique economy

Increased levels of shopping helped offset slower activity in dairy and meat processing. Photo by...
Increased levels of shopping helped offset slower activity in dairy and meat processing. Photo by Reuters.

Politicians will get their final chance to critique the economy on Thursday with the release of economic growth figures, although they may use tonight's GlobalDairyTrade auction to start the debate.

Commentators expect some good news from Statistics New Zealand this week, tempered with a moderation in economic growth.

However, economic growth, while slowing in the three months ended June, is still expected to reach 3.9% annually, one of the strongest growth rates in the OECD.

This week, local economic data may take a back seat to politics, with the general election taking place on Saturday.

However, ASB chief economist Nick Tuffley said the GlobalDairyTrade auction would be a focus for farmers and New Zealand dollar watchers alike.

Dairy auction prices have fallen significantly this year, giving opposition politicians the chance to criticise what they see is an over-reliance on the ''dairy and disaster'' policies from the Government.

Tomorrow, the current account deficit figures will be released by Statistics New Zealand.

Westpac senior economist Michael Gordon expected the deficit to have closed further to 2.5% of GDP for the year ended June, which would be the lowest since late 2010.

''The improvement in the annual balance reflects that while conditions were getting tough for exporters over the June quarter this year, they were still better than the same time last year - dairy export prices were high, but volumes were devastated by drought.''

The improved trade balance for goods was likely to be partly offset by an increase in the investment income deficit, he said.

A consequence of the strengthening economy was profits accruing to foreign owners of New Zealand-based firms going higher, Mr Gordon said.

Mr Tuffley expected Thursday's gross domestic product (GDP) release on economic activity to show a moderation in the New Zealand economy following three quarters of solid growth.

''Momentum clearly remains intact in the New Zealand economy. Although construction growth was much more modest in the second quarter, that followed a surge in activity in the previous quarter.''

There were also signs stronger construction activity was flowing through to increased demand in other areas such as manufacturing and professional services.

The services sector was feeling the benefits from higher consumer confidence, as seen in stronger discretionary spending.

''These positive factors have put the New Zealand economy on a solid footing,'' he said.

Mr Gordon said there was no question the New Zealand economy had lost some of its momentum in recent months but he still expected GDP figures to show the change in fortunes had not been dramatic.

His estimates of the breakdown of GDP growth showed an unusually neat split between weakness in the trade-oriented sectors and strength in the domestically focused ones.

On the weak side, falling world prices for dairy products led to an estimated 5% drop in milk production in seasonally adjusted terms, weighing on the agriculture and food manufacturing sectors, he said.

Falling log prices also reduced output in the forestry sector, although Westpac believed there would be a greater hit to come in the September quarter.

The expected fall in mining output reflected the previous two quarters being temporarily boosted by exploration activity, Mr Gordon said.

Mr Tuffley said the election result would be the main influence on markets late this week, and early next week.

''If there's one thing financial markets never like, it is uncertainty. So in that sense, we expect a clear-cut result will have the least effect on the NZ dollar and interest rates.

"In contrast, any situation where it is unclear who can or will form the next government would likely weigh on the dollar early next week.''

dene.mackenzie@odt.co.nz

 


At a glance

• Current account balance 2.5% of GDP

• Economic growth slows from 1% in March to 0.7% in June but increases to 3.9% annually from 3.8%.

• Focus on tonight's GlobalDairyTrade auction prices.

• Dairy and livestock slaughter activity eases from high levels.


 

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