August 15, 2024

✅️Economy
The weakening in domestic economic activity observed in the July Monetary Policy Review has become more pronounced and broad based. While official economic statistics have evolved in line with expectations in the May Monetary Policy Statement, a broad range of indicators point to a material weakening in domestic economic activity in recent months. These include measures of business activity, electronic card transactions, vehicle traffic, house sales, filled jobs, and job vacancies. These indicators provide a consistent signal that the economy contracted in recent months. The Committee discussed possible reasons for the current economic weakness. Alongside restrictive monetary policy, an earlier or larger impact of tighter fiscal policy could be constraining domestic demand. Falling net migration may also be playing a role.
✅️Inflation
Headline inflation has declined, and business inflation expectations have returned to around 2 percent at medium- and longer-term horizons. Global inflation has continued to decline but remains elevated in some parts of the services sector in many countries. Some central banks have recently begun cutting policy interest rates, reflecting lower core inflation, weaker activity, and softer labour markets. In this respect, New Zealand’s economic activity and near-term inflation indicators now resemble those in countries in which central banks have started cutting policy rates. Inflation fell considerably in the June quarter, due mostly to lower tradables inflation, while domestic inflation declined in line with expectations. All measures of core inflation have fallen and the components of CPI that are sensitive to monetary policy have declined further. These developments provide the Committee with more confidence that headline inflation is returning to the target band in the September 2024 quarter.
✅️Labor Market
The June quarter data suggest that employment growth has slowed, with declines in private
sector jobs, hours worked, and wage growth. The impact of government spending restraint and public sector job losses are expected to materialise in further weakening in employment growth over coming quarters
✅️Global Growth
Global growth remains below trend across advanced economies. Growth in China has been softer than expected, due to a depressed property market and weak consumer demand. While US growth has been firm, some indicators show emerging weakness
✅️Financial Markets
Recent volatility in global asset markets reflects nervousness about US economic prospects, geopolitical risks, and the outlook for international trade policy
✅️Rates
Weaker economic data globally have prompted markets to price in lower policy rates for the rest of the year, pushing down sovereign yields in most advanced economies. While domestic financial conditions remain restrictive, they have loosened over recent months. Market expectations for the forward path of the Official Cash Rate (OCR) have contributed to lower wholesale and borrowing rates, along with some depreciation in the nominal exchange rate.
✅️Risks
The balance of risks has progressively shifted since the May Monetary Policy Statement. With a broad range of indicators suggesting the economy is contracting faster than anticipated, the downside risks to output and employment that were highlighted in July have become more apparent.

🔸Summary:
*️⃣Police-makers are worried about weakening economic activity which became more obvious in recent months and warn that this may lead to recession.
*️⃣Inflation fell considerably in the second quarter.
*️⃣Labor market has eased and is going to ease further

⭐️Comment
It looks like the RBNZ shifted its attention from inflation to the threat of recession and as such more rate cuts can be expected to follow in coming months.