The ANZ heavy traffic index eased 1.4% in September after a 6.8% bounce in August. The index is trending upward but at a slower rate than earlier in the year.
The light traffic Index lifted 0.4% month on month, maintaining its unyielding pattern says the ANZ.
The economy has been outperforming the signal from the heavy traffic index in recent months.
This performance perhaps reflects recent strains in the dairy sector, which, while having some influence on traffic volumes, have not led to materially softer GDP growth.
“We are therefore not reading too much into the recent flattening, particularly given that the light traffic index continues to test the speed limit,” says the ANZ.
Annual growth in the heavy traffic index (3 months average) is running at 3.2%. It has been fairly steady around this kind of growth rate over the past year.
The Light Traffic Index gives around a six-month lead on the economy and is best interpreted as a measure of momentum. The economy has accelerated this year, with this strength better captured by light traffic than heavy.
“This divergence captures a broader observation: that the dairy sector slowdown has not knee-capped the New Zealand economy to the extent one might have expected,” says the ANZ.
It also says strong population growth and exceptionally low-interest rates have resulted in a boom in building and related services, while tourism has also been very strong.
“We don’t believe the New Zealand economy is in danger of running out of fuel anytime soon, but we are watching out for signs that often indicate a business cycle is becoming overripe, such as excessive borrowing and consumer largesse,” says the ANZ.
“We also remain nervous that the mismatch between lacklustre global growth and buoyant global asset prices may be resolved in an unpleasant way,” concludes the ANZ.
