This week’s GDP release confirmed the New Zealand economy entered 2014 growing strongly largely thanks to the three C’s of confidence, construction and commodity prices. March GDP growth came in at 1.0%, a touch under our forecast of 1.1%. Thanks to positive revisions to prior quarters, year-on-year and annual growth came in stronger than expected at 3.8% and 3.3% respectively. That’s the fastest annual average growth since late 2007.
were no real surprises in the result – construction was the start performer
rising 12.5%. But this followed a couple
of flat quarters so much of this was due to timing/catch-up. Growth elsewhere was more modest but
generally broad-based. A couple of
sectors went backwards over the quarter.
The decline in wholesale trade followed a strong prior quarter so we put
that down to data volatility. The
decline in business services was more meaningful and consistent with recent
softer housing (real estate) data.
are now well into the June quarter and the pace of growth appears to be
moderating somewhat. While business and
consumer confidence remain at healthy levels they are off their recent
highs. Recent housing market data has
been a touch softer than expected, although we put at least some of that down
to the way Easter and ANZAC fell in April with many folk taking an extended
break over the two long weekends. Retail
spending growth has also lost some momentum recently.
commodity prices have fallen faster than we thought they would and Fonterra’s
opening milk price forecast for 2014/15 is commensurately lower. The May BNZ-BusinessNZ manufacturing PMI for
May showed another decline although the index remains in expansion
territory. And of course the Reserve
Bank of New Zealand has begun the process of withdrawing the significant
monetary stimulus in the economy and is expected to continue to do so.
are a couple of recent developments that are positive for the growth
story. Despite the Reserve Bank raising
interest rates, fixed rate mortgages have actually fallen recently on the back
of lower global interest rates. And of
course net inward migration has continued to climb. The construction sector will continue to underpin
growth in the period ahead, although not at the pace seen in the March quarter.
the pace of growth is expected to moderate from the June quarter of this year
it will remain solid and, importantly, in excess of our potential to grow
without generating inflation. That means
pressure on resources, upward pressure on inflation and further tightening in
For more information on the outlook for the
New Zealand economy, equities, fixed interest and the NZD, have a look at our
latest issue of New Zealand Insights which you can find here.