Monthly economic review: March 2018

9 Mar 2018

New Zealand’s terms of trade, which measures the volume of imports that can be purchased with a fixed volume of exports, reached a new all-time high in the December 2017 quarter. The terms of trade had previously reached an all-time high in the September quarter, surpassing the prior peak reached in 1973. Export prices rose to a greater extent than import prices in the December quarter, resulting in the terms of trade to rise 0.8 percent. The price of exported lamb rose by 12 percent in the quarter, while the price received for butter exports rose by 11 percent.

There was strong retail sales growth recorded in the December quarter, with retail sales volumes rising by 1.7 percent. This followed weak sales growth of 0.3 percent in the previous quarter. Growth was led by households spending more on food and beverage services, along with spending on motor vehicles and parts. Accommodation retail sales volumes fell 2.3 percent in the quarter, having fallen by 5.1 percent the previous quarter. Accommodation volumes were higher in the first half of 2017 due to the Lions Rugby tour and the Masters Games held in Auckland.

The NZX reported that the number of equity transactions on the exchange was up 67 percent in February compared to a year earlier, with the average daily value of equities traded in February 2018 totalling $162 million. The increase in share trading activity has likely been influenced by the increased volatility in international equity markets and the technical correction experienced in the United States equity markets (defined as a drop of ten percent or more). Between the start of January and mid-February, the S&P/NZX50 fell 4.7 percent. Since then, the S&P/NZX50 has recovered around two-thirds of the decline in the index.

According to QV, average house prices have risen by 1.2 percent over the last three months, with an average house price of $672,645 in February. The average house price has risen by 6.5 percent over the last 12 months. Christchurch house prices fell by 0.8 percent over the year, while the average price in Auckland rose one percent.

United States President Donald Trump has announced that he is going to introduce trade tariffs on imported steel and aluminum to protect domestic producers, at tariff rates of 25 percent and ten percent respectively. Canada is the single largest exporter of steel to the United States, followed by Brazil and South Korea. The International Monetary Fund issued a statement noting that the proposed import restrictions “are likely to cause damage not only outside the U.S., but also to the U.S. economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel”.

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