Signs of a slowdown in the New Zealand economy, just when everyone thought it was on the road to recovery?
The NZ Treasury said yesterday the economy lost some momentum as retail spending and the property market slowed in the first months of 2010.
It said leading indicators suggest January retail sales may decline and the housing market has slipped.
But offsetting this, the department said in its monthly update that forward-looking indicators such as immigration and business confidence were strong .The monthly update didn’t contained new forecasts.
Export prices are also up, according to a survey from the ANZ Bank and prices of major exports such as milk products remain high.
"The New Zealand economy is continuing to recover, though some momentum, particularly in the household sector, may have been lost over the initial months of 2010, "Treasury said.
"Forward-looking indicators are generally positive, especially for the manufacturing and construction sectors and the lower exchange rate in recent months is providing more confidence for exporters.
"Retail sales rose further in the December quarter, reflecting the significant lift in consumer confidence over the second half of 2009 as the economy emerged from recession.
"Discounting played a key role in increasing volumes, as the higher exchange rate helped to lower the price of imported goods.
"However, sales in the December month were weak and initial indicators for January suggest momentum may continue to ease in the short term, with both consumer and retailer confidence slipping."
The Department said that following the strong recovery through the middle of 2009, "housing activity has also lost momentum in recent months, with January data showing a sharp fall in sales.
"While some of the weakness may reflect some uncertainty about future changes to property taxes, it is more likely the initial euphoria resulting from historically low interest rates earlier in 2009 has somewhat faded.
"However, residential construction is expected to contribute strongly over coming quarters, as building consents continue to rise and activity expectations remain at historically high levels.
"Employment was fractionally more positive than we had expected in the December quarter, while unemployment lifted above market expectations.
"With employment intentions continuing to rise, we expect employment to begin to expand again in coming quarters.
"Wage growth slowed in December, reflecting the lag between labour market conditions and wage setting.
"With more people seeking work and more firms in a position to increase work hours rather than employee numbers, wage growth is likely to remain subdued in the near term.
"While uncertainty continues to dominate the global economic environment, Australia and Asia are recovering strongly, which along with a lower dollar and more positive outlook for manufacturing and construction bodes well for exporters.
"While we are yet to see the full pass-through of higher expectations to activity, growth is likely to continue gradually recovering, in line with a strengthening labour market and other economic indicators."
Despite the suggestions of slowing consumption, no economist is expecting the Reserve Bank of New Zealand to change rates at its next meeting on March 11 (Thursday week).
Buoying the economy, immigration is rising and New Zealand’s currency has fallen nearly 4% against the US dollar in the past three months.
“The lower exchange rate in recent months is providing more confidence for exporters,” the Treasury said.
Annual immigration growth was the strongest in more than five years, according to a government report yesterday.
The number of permanent migrant arrivals exceeded departures by 22,588 in the 12 months ended January 31, up from 21,253 in the 12 months through December.
That’s the highest since May 2004.
