Thursday, June 20, 2013

NZ GDP growth a tad weaker than expected

NZ March 2013 quarter GDP came in at +0.3% for the quarter, below market expectations of +0.5% and our own expectation of +0.6%.  Nevertheless, I find it hard to get too disappointed given that any growth in the quarter essentially banked the large +1.5% in the December 2012 quarter.  Annual (production based) growth came in at +2.4% for the year to March, close to expectations helped by upward revisions to previous quarters.

On a sectoral basis the only real surprise was the March quarter saw more of a hit from the drought than we expected.  The agriculture sector was down 4.7% over the quarter, mostly driven by lower dairy production.  That has me thinking that much of the drought effect may now be in the numbers, although I’m wary of a further hit in the June quarter.

Other than agriculture, most sectors were in line with expectations including a significant 9.6% boost in residential construction over the quarter for an overall construction increase of 5.5%.  Pending construction activity in the form of architectural and engineering services also provided a boost to Q1 activity and an indication of things to come.

Looking at the data through an expenditure lens, exports were stronger than expected rising 2.5% in the quarter to be up 8.5% on the year.  Services exports also put in a hefty rise (consistent with yesterday’s current account data).  We wonder about the sustainability of such a significant increase.

The disappointment was the decline in business investment in plant and machinery equipment which fell 6.2% over the quarter, nearly reversing all of the surprisingly strong gain in the December quarter.  As we’ve said many times before, a stronger more sustainable New Zealand rate of growth is highly dependent on export s and business investment.  However, robust business confidence gives me some confidence that business investment will recover in the not too distant future.

All things considered, this is not a bad result.  At this stage I am leaving my June quarter forecast at +0.5% for the quarter and for a move higher in GDP growth in the second half of the year.  That will give us annual growth of 2.7% for the 2013 calendar year.  Not bad by developed world standards.