-Kim Mundy, ASB Bank economist
New Zealand's manufacturing sector grew at a slower pace in July, reinforcing the view that the nation's economy is slowing. The Business NZ-BNZ Performance of Manufacturing Index dropped to 53.5 in July from a revised 55.1 a month earlier, where a figure above the key 50-mark threshold signals an expansion in factory activity, while a reading below 50 indicates a contraction. The data adds to the case for the Reserve Bank of New Zealand to trim interest rates again this year, in line with market expectations. The central bank began an easing cycle in June amid continued weakness in global dairy prices, barely existent inflation, and the clouded outlook for demand. The Official Cash Rate has been cut 50 basis points to 3.00% since June and analysts expect to see the cash rate at 2.50% by year end, with some even forecasting it to go lower than 2.50%.
Separately, New Zealand's retail sales volumes growth slowed to the slowest pace in nearly two years in the second quarter, leaving the door open for further monetary policy easing. Sales volumes rose a seasonally adjusted 0.1% in the quarter, following a downwardly revised 2.3% increase in the preceding three-month period. The data added to other signs the New Zealand's economy is losing steam, backing the case for the RBNZ to cut the official cash rate further.
© Dukascopy Bank SA