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Forex traders huddle up! Was the Reserve Bank of New Zealand (RBNZ) right to cut its interest rates from 2.50% to 2.25% a few months ago?

Let’s revisit New Zealand’s main indicators to see just how much the external factors have affected its economy:


  • The economy grew by 0.9% in Q4 2015, matching Q3’s growth and exceeding the markets’ 0.7% growth expectations.
  • The annualized figure also mirrored Q3’s growth at 2.3%, which brought the 2015 growth rate to 2.5%.
  • The agricultural sector took hits from low commodity prices and weak global demand. Meanwhile, the contraction in manufacturing is being compensated by increases in construction activity. The services sector contributed the most though, thanks to the tourism industry and business services such as research, management, architectural, and engineering services.


  • The unemployment rate ballooning from 5.4% to 5.7% in Q1 2016 is a reflection of people entering the workforce faster than employers can hire workers.
  • Employment rose by 28,000 in Q1 2016 following Q4 2015’s 22,000 job increase. Meanwhile, the labor force rose by 38,000, the fastest increase since Q4 2004.
  • Nearly half of the annual employment growth is in the Auckland region and in construction and professional services.
  • Wage growth remains subdued, which doesn’t help the Reserve Bank of New Zealand’s (RBNZ)’s concerns over meeting its inflation targets.


  • The decline in oil prices in Q1 2016 offset the impact of a weakened domestic currency.
  • Housing-related activities (up by 3.0% y/y) boosted consumer prices while transport prices (a.k.a. oil) dragged on inflation with its 5.1% annualized decline.
  • A rise in excise duties for cigarettes and tobacco took effect in January, which explains the 9.4% price increase for the quarter.
  • The RBNZ expects inflation to average at 0.4% in 2016 and 1.3% in 2017. It’s targeting a range of 1.0% to 3.0% inflation rate.


  • Reading the PMI reports: A reading above 50.0 indicates industry expansion while sub-50.0 results hint at contraction in the industry.
  • On a monthly basis, business indices showed improvement in April after seeing dips in March.
  • The Business NZ manufacturing PMI clocked in at its highest since January. Manufacturing PMIs have mostly been in the expansion territory since October 2012.
  • Growth in production, new orders, and deliveries kept businesses happy though the employment components for both the Business NZ manufacturing PMI and business confidence show limited intentions to hire and increase wages.


  • Retail sales grew by 0.8% in Q1 2016, lower than the expected 1.0% uptick and are the weakest growth rate since June 2015. The annual growth of 4.8% is also the slowest since Q3 2014.
  • Still, 11 out of the 15 items in the retail sales report saw growth over the previous quarter.
  • The rise in sales of electronic goods (+3.8%) and clothing, footwear, and accessories (+1.7%) suggest that the strong Kiwi is making imports more attractive.
  • Consumer confidence fell to 109.6, the lowest level in seven months, on concerns over low oil prices and high property prices.
  • The RBNZ’s recent interest rate cut also has consumers worrying over their savings.


  • New Zealand clocked in a 117M NZD surplus in March, the third consecutive month of trade surplus.
  • The sharp declines in the annualized exports (-14.0%) and imports (-3.7%) led to the biggest annual trade deficit since 2009.
  • The wide trade deficit is consistent with the drops in prices of New Zealand’s produce exports such as milk powder (down by 42% from a year earlier), beef, and lamb.
  • Export volumes of meat dropped by 13% while dairy exports fell by 17%.
  • 4 out of New Zealand’s top 5 export markets also showed weaknesses with China dropping by 4.1% and Australia slipping by 3.3%.

TL;DR? Here’s a neat chart that summarizes the figures for ya!

New Zealand

Putting it all together

Looking at the figures above, we can’t really blame the RBNZ for cutting its interest rates back in March and its threats to cut its rates some more.

The export-dependent economy is simply too vulnerable to external factors such as low oil and dairy prices as well as falling overseas demand.

Right now the central bank’s biggest challenge is to stimulate inflation. Not an easy task considering that the manufacturing sector is still reeling from low milk, beef, and lamb prices, consumers are getting concerned over their savings, and the employment sector is not pumping out enough jobs to accommodate the jobseekers.

Not all hope is lost though. The arrival of tourists and the increased activity in the construction sector are compensating for the slack in manufacturing while the agricultural sector has just endured a bout of El Niño in Q1 2016.

Businesses and consumers also generally remain upbeat, which could support more economic activity in the next quarters.