Monthly economic review: October 2017

17 Oct 2017

The Monthly Economic Review is an overview of the New Zealand economy. It includes the latest data on New Zealand’s economic growth, unemployment, inflation, merchandise trade and balance of payments figures, along with certain financial data (such as the Reserve Bank’s official cash rate). The unemployment rate, economic growth and central bank interest rates for several of our main OECD trading partners are also included. Each publication highlights a specific topic of interest. The Monthly Economic Review is produced eleven times per year.


The New Zealand economy expanded by 0.8 percent in the June 2017 quarter, and by 2.7 percent over the year ended in the June quarter. Exports of goods and services rose by 5.2 percent in the quarter, due to an increase in dairy product exports along with higher export services revenues. Higher tourism spending as a result of the Lions rugby tour and the World Masters Games supported services revenue growth in the quarter. Household consumption spending rose by 0.9 with spending on durable goods (such as flat-screen TVs and cell-phones) rising by 1.8 percent.

The annual current account deficit totalled $7,490 million in the year ended June 2017, equivalent to 2.8 percent of gross domestic product (GDP). A surplus was recorded in the services component of the current account, while deficits were recorded for the remaining components. This included a deficit of $7,999 million for the primary income component, which captures earnings from New Zealand investments overseas (both equity and debt) less the earnings of foreign investors on their New Zealand investments.

Acting Reserve Bank Governor Grant Spencer left the official cash rate (OCR) steady at 1.75 percent in late September. In announcing the decision, the Acting Governor said that “monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly”. In the August Monetary Policy Statement, the Bank had forecast the OCR to remain steady at its current level until the September 2019 quarter. Short-term interest rates remained steady in September, while long-term interest rates rose slightly. Fixed-term mortgage rates for a duration of two years or more eased marginally in August, while the one-year fixed term rate provided the lowest interest rate of 5.04 percent (one of the main registered banks is currently offering a one-year fixed rate of 4.39 percent).

The United States Federal Reserve has announced that it is tapering off its quantitative easing programme, which has been in place since the Global Financial Crisis. It will no longer reinvest all principal payments received through its investment in Treasury securities and mortgage-backed securities. The Federal Reserve also announced that the Federal Open Market Committee had decided to keep the Federal Funds Rate steady at a range of 1 – 1.25 percent. Federal Reserve Chairperson Janet Yellen’s four-year term expires in February 2018. The President appoints the position from members of the Board of Governors (the current chair could be appointed for a further four year term).

The OECD has projected the global economy to expand by 3.5 percent in 2017, rising to 3.7 percent next year due to an increase in trade and industrial production, along with investment in technology. Economic growth within the OECD area is projected to rise to 2.1 percent in both 2017 and 2018 (from 1.8 percent in 2016). The OECD has projected that the drivers of economic growth in New Zealand will move away from household consumption and construction to business investment, higher dairy prices, and continuing strength in the tourism sector.

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