June quarter indicators still positive

Data releases during August pointed to robust demand in the household sector in the June quarter, supported by solid growth in jobs and employment income, the Treasury said yesterday.

Releasing its August monthly economic indicators, the Treasury said spare capacity in the labour market continued to be reduced as the unemployment rate fell.

Other indicators continued to point to a more moderate pace of expansion ahead than in recent quarters.

Business and consumer confidence, while elevated, were below the peaks achieved earlier this year - consistent with tightening monetary conditions, slower rates of house price appreciation and a weakening in dairy prices.

''That said, the pace of economic growth is still expected to be above trend and inflationary pressures are likely to gradually build given spare capacity has been exhausted.''

Growth would continue to be supported by the Canterbury rebuild and elevated domestic demand as the net inflow of external migrants remained high, the Treasury said.

Dairy prices had continued to fall from their peak in February and were starting to flow through to the trade data in the form of a decline in export values.

It was assumed dairy prices would stabilise and improve later this year as seasonal factors reversed and Chinese stock levels declined.

Growth in the major economies was uneven in the June quarter. GDP expanded strongly in the United States, but stalled in the Euro area and contracted in Japan. Chinese activity appeared weaker going into the September quarter.

Differences in the economic outlook of the major economies had also been reflected in their contrasting monetary policy stances.

Financial markers had been affected by geopolitical risks, the Treasury said.


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