November NZ Economic Update

ASB Heading Nov2016 1000

Key highlights:

  • Last Monday’s earthquake caused extensive damage to infrastructure and buildings around the middle of NZ.
  • Disruption is ongoing in both the South Island and Wellington.
  • Fonterra’s milk price forecast revision to $6/kgMS gave a few something to smile about.

Last week, New Zealand’s focus remained firmly on the 14th of November’s devastating M7.8 earthquake in the upper South Island. Kaikoura has been largely cut off and State Highway 1 and the main trunk rail link between Picton and Christchurch have been severely damaged. It will still be some time before we get an idea of the total repair cost from the earthquake (and subsequent aftershocks). For more information on the economic impacts of the quake, click here. Given the uncertainty around the cost of repairs, there is a possibility that the government’s Half-Year Economic and Fiscal update, set for December 8, is delayed for a week (to the 15th December). However, we are waiting for this to be confirmed.

The government has already announced a $7.5 million stimulus package for small businesses in Kaikoura, Cheviot, Waiau, Rotherham, Mt Lyford and Ward. Firms with less than 20 employees can apply for wage subsidy grants of up to $500 a week per employee for eight weeks to ensure that firms can continue to employ their staff. While this will undoubtedly help small businesses, there is likely to be ongoing business disruption for some time.

This disruption is still being felt in Wellington as well, where on-going building closures are making a return to business as usual difficult for a number of Wellington-based businesses. For example, Statistics NZ’s building was damaged and its website crashed following the earthquake. However, by late Friday evening, Stats NZ’s website had been partially restored and a number of delayed data releases were published. Stats NZ is also updating its release calendar daily to let users know of any further delays. However, it does not expect there to be any delays to December’s data releases, which includes Q3 GDP.

However, it wasn’t all bad news last week. On Friday, Fonterra revised its 2016/17 milk price forecast up to $6.00/kgMS. After starting the season with a forecast of $4.25/kg, a combination of lower production in New Zealand and Europe has seen milk prices lift strongly over the last few months. This means that farmers will see an immediate lift in income of 50c/kgMS and is likely bringing a smile to farmers’ faces around the country. Here at ASB, the fall in NZ production due to wet weather in the Waikato has pushed prices higher than we were expecting at this point in the season. As a result, we have officially placed our $6/kg forecast under review.

This week is likely to remain a bit stop and start as the country continues to get back on its feet post-quake. International travel and migration data and the trade balance (due Tuesday and Friday respectively) may be delayed, but we will keep you updated with any changes. Overseas, the actions of US President-elect Donald Trump will also continue to be closely watched.


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