Fourth quarter 2011 New Zealand GDP growth was worse...and better...than expected. Headline growth came in lower than expected at 0.3% for the quarter (market expectation was +0.6%), with annual growth at 1.8% (2.2%). In particular the manufacturing sector was weaker than expected posting a decline of 2.5% over the quarter. But domestic demand was stronger than expected, so the news was not all bad.
The good news is that some of the weakness in Q4 was due to timing, some of which will wash out in the current March quarter. This is especially the case in the manufacturing sector where the processing of some livestock was delayed due to good grass growth – yes, we are still largely an agricultural economy. Grass growing conditions matter!
We also saw the reversing of the large build-up in inventories that occurred during the third quarter of the year. This de-stocking is occurring at a faster-than-expected pace which bodes well for production in the period ahead.
For us the major positive in the release was the strength of domestic demand over the quarter. That was of course partly due to the Rugby World Cup with private consumption up 0.8% in the quarter following a 1.6% gain in Q3. However, we expect the annual growth rate will slow from the current 3.3% into 2012 as the RWC effect washes out. Both residential and non-residential construction posted solid gains over the quarter, but remember this is off a low base.
The weaker-than-expected headline rate hasn’t dramatically changed our view about the growth outlook for the year ahead. In fact given the timing and destocking issues, we have bumped up our March quarter GDP pick from +0.6% for the quarter to +0.8%. In terms of the Reserve Bank and monetary policy, this result does not change our view of a tightening in monetary conditions from later this year.