Thursday, September 19, 2013

NZ GDP better than expected

June quarter GDP came in at +0.2% for the quarter.  That was bang on average market expectations but higher than my zero.  Annual growth came in at +2.5% with annual average at +2.7%.  Both annual rates were higher than expected by virtue of revisions that saw three of the previous four quarters revised upwards.

On a production (sector) basis much of the detail was as expected.  Agriculture (-6.4 q/q) fell sharply on the back of the drought while business services (+2.6%) and retail trade (+2.1%) posted strong growth.  The surprises for me were a smaller than expected decline in the manufacturing sector and stronger than expected construction activity, the latter thanks to strong infrastructure investment.

On the expenditure side, again much of the detail was as expected.  There was a big negative contribution from net exports as exports fell -5.9% (q/q) and Imports rose +1.3%.  On the plus side, personal consumption rose 1.5%.  The surprises in this measure of GDP were a positive contribution from government expenditure and a more significant build- up in inventories.

While the drought has now knocked about 0.7% off GDP growth in the March and June quarters of this year, overall GDP growth has weathered the drought surprisingly well thanks to the offsetting influences of strong household expenditure and construction activity.  Furthermore following the drought, growing conditions have benefited from a wet and warm winter which is supportive of a recovery in dairy volumes.  That will turn what has been a significant headwind for growth into a positive in the months ahead.

There is nothing in this result to alter our expectations of stronger growth in the period ahead.  We think both September and December quarters of this year are likely to post GDP growth of around 1% each per quarter as construction cointinues to grow and households continue to spend.  

While that level of growth is significantly stronger than the first half of the year its, only slightly ahead of the same period last year thanks to the ripper December 2012 quarter increase of 1.6%.  That has us expecting calendar year annual average growth of 2.8% in 2013, pushing on to 3.5% during 2014.