NZ Treasury: Domestic data signaled a pick up in momentum but coronavirus weighs on outlook

New Zealand’s (NZ) Treasury is out with its monthly economic indicators report, with the key takeaways found below.

Domestic data from January signaled a pickup in momentum with ANZ's Heavy Traffic Index and BusinessNZ sentiment indicators showing large gains. However, the COVID-19 outbreak is weighing on the outlook. 

Tourism operators and commodity exporters are experiencing negative impacts, although the full extent of these impacts is yet to be felt, and will take some time to show up in the official data. 

The situation is evolving rapidly; the global spread of the virus is increasing the risks of a substantial negative impact that persists for several quarters. 

Treasury, in conjunction with other agencies, is assessing the potential impacts over three alternative scenarios so that the Government can plan appropriately to support New Zealand businesses and households.

Data to December 2019 show that overseas visitor arrivals growth was already slowing before news of the COVID-19 outbreak, driven by a steady decline in Chinese visitors. Commodity prices also eased in January, and the price of whole milk powder fell a total of 9.0% over the two February GlobalDairyTrade auctions.

The Reserve Bank kept the Official Cash Rate unchanged at 1.0%, noting that employment and inflation are both around target. Despite anticipating short-term impacts from the COVID-19 outbreak, they expect accelerating economic growth in the second half of 2020 supported by government investment. 

The coronavirus (COVID-19) outbreak in China, and its spread to other economies, is weighing on the near-term global growth outlook. In China, daily counts of the number of new confirmed and suspected cases are trending lower, production is gradually resuming and travel restrictions are being eased.

NZD/USD back in the red

The Kiwi tracks the renewed weakness in the Aussie, returning to the red zone around 0.6250 amid looming coronavirus concerns. The bulls continue to face rejection near 0.6280 region.

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