Global Economic Slowdown: What It Means for New Zealand
Recent economic data paints a concerning picture of slowing global growth, with significant implications for New Zealand. From weakening US indicators to mixed signals from China and Europe, the world economy is navigating a period of uncertainty. This report breaks down the key developments and what they could mean for Kiwis.
US Economy: Cracks Appear in the Foundation
The US, the world’s largest economy, is showing signs of a slowdown. Mortgage applications have retreated for two consecutive weeks, despite remaining higher than last year. However, the decline in purchase finance is particularly worrying, suggesting cooling demand in the housing market. This aligns with the ADP employment survey, which revealed a meager +22,000 job additions in January – a significant drop from December’s revised figure and well below expectations.
While healthcare continues to be a bright spot, adding 74,000 jobs, manufacturing and other sectors are experiencing retrenchment. The January non-farm payrolls report, typically released on the first Friday of the month, is delayed due to the US government shutdown, adding to the uncertainty. It’s now scheduled for release on February 12th (NZT).
Did you know? The ADP survey, based on a sample size of 26 million, is often seen as a precursor to the official non-farm payrolls report, providing valuable insight into the health of the US labor market.
China: A Tale of Two PMIs
China presents a mixed bag. While the official January services PMI was somewhat negative, the private S&P Global version offers a more optimistic outlook. The RatingDog China General Services PMI rose to its strongest expansion since October, driven by increased new orders and foreign sales. This suggests resilience in the services sector, despite broader economic challenges.
However, China also reported a fall in fiscal revenue for 2025 – the first since the pandemic – with declines in non-tax takings outweighing a modest recovery in tax revenue. This highlights potential fiscal pressures within the Chinese economy.
Europe and Australia: Inflation and Cost of Living Concerns
In Europe, a strengthening euro has helped to bring January CPI inflation down to 1.7%, but food prices remain elevated at 2.7%. Australia’s living cost indexes reveal a disparity: while overall living costs for employees rose by a relatively modest 2.2% annually, they surged by 4.2% for aged pensioners, highlighting the uneven impact of inflation.
Pro Tip: Keep a close eye on inflation data in major economies. Persistent inflation can lead to tighter monetary policy, impacting global interest rates and economic growth.
Currency and Commodity Markets: Kiwi Dollar Under Pressure
The New Zealand dollar has weakened against the US dollar, currently trading at just over 59.9 US cents. It’s also down against the Australian dollar and the euro. Gold prices have fallen sharply, while oil prices have seen a slight increase. Bitcoin continues its downward trend, reaching levels not seen since November 2024.
Bond Yields: A Flight to Safety?
US 10-year Treasury yields have edged down to 4.27%, potentially indicating a ‘flight to safety’ as investors seek less risky assets. New Zealand’s 10-year bond rate has also decreased, falling 4 basis points to 4.59%. The shape of the yield curve – the difference between short-term and long-term yields – continues to be monitored as a potential indicator of recession risk.
Stock Market Reaction: Tech Sector Pullback
Wall Street started its Wednesday session weaker, with the S&P500 down 1.0% due to a pullback in the tech sector. European markets were mixed, while Asian markets generally showed positive performance, with Tokyo, Shanghai, and Singapore all recording gains. The NZX50 managed a modest gain of 0.3%.
What Does This Mean for New Zealand?
New Zealand’s economy is heavily reliant on global trade and economic conditions. A slowdown in major economies like the US and China will inevitably impact our export markets and overall economic growth. The weakening Kiwi dollar could provide some support for exporters, but it also increases the cost of imports.
The delayed US payrolls report adds to the uncertainty, making it difficult for the Reserve Bank of New Zealand (RBNZ) to assess the global economic outlook and make informed decisions about monetary policy.
FAQ
Q: What is a PMI?
A: PMI stands for Purchasing Managers’ Index. It’s an economic indicator derived from monthly surveys of private sector companies and provides insights into business activity.
Q: What is the yield curve?
A: The yield curve plots the interest rates of bonds with different maturities. Its shape can indicate market expectations about future economic growth and inflation.
Q: How does the US economy affect New Zealand?
A: The US is a major trading partner for New Zealand. A slowdown in the US economy can reduce demand for New Zealand exports and impact our economic growth.
Q: Where can I find more information on economic indicators?
A: Visit our Economic Calendar for a comprehensive overview of upcoming economic events.
Stay informed about these global economic trends and their potential impact on New Zealand. Explore more articles on Interest.co.nz to deepen your understanding of the economic landscape.
