Friday, June 22, 2012

NZ GDP a ripper, but don’t get too excited

The big surprise of the week this week was home-grown.  March 2012 GDP beat all forecasts with a ripper 1.1% for the quarter, taking the annual rate of growth to 2.4% up from 1.9% in the year to December 2011.  The annual rates were given a bit of assistance from small upward revisions to recent quarters. 

This result also comes after just having revised down our near-term growth expectations.  That was based on lower than originally expected final demand over the course of 2012.  That story still remains intact.  Indeed the upward surprise in the March data was the contribution from stock-building with final demand still soft. 

That has us continuing to expect subdued growth for the rest of this year.  We have not changed our forecast quarterly GDP track on the back of this latest result with the next three quarters growth expected to average around 0.5% per quarter.  However, the much better starting point now has us forecasting annual growth of around 2.5% this year.
Of course when we lowered our GDP forecasts we also shifted out our expected start to the next tightening cycle to mid-next year from the end of this year.  I’m still happy with that story at this point.  Sure the output gap just closed up a bit more quickly than expected, but soft growth over the next few quarters means we think the Reserve Bank can still wait till next year to start taking the foot of the monetary policy accelerator.  That of course continues to assume a "muddle through" scenario in Europe.