Thursday, December 18, 2014

NZ GDP stronger...and weaker...than expected

New Zealand September quarter GDP came in stronger than expect at +1.0% qoq, but the major news of the day was the downward revision to earlier growth estimates.  The biggest issue we have been grappling with recently has been persistently low inflation in the face of growth that has been, until now, well above potential.  At least part of that is now explained by the fact that growth hasn’t been as strong as we thought it was.

Dealing with the quarter first, growth at +1.0% was stronger than expected by us (+0.8%), the consensus (+0.7%) and the Reserve Bank (+0.9%).  Growth was strongest in the primary and goods-producing sectors.  Strongest contributions came from agriculture, mining and manufacturing.  Construction activity was down slightly over the quarter, but remains at a high level.

Despite the stronger than expected growth in the quarter annual growth came in at +3.2% yoy versus the expected +3.3%.  Annual growth in the year to June was revised down from +3.9% to +3.2%.  Annual average growth was +2.9% in the September year versus the expected +3.1%.

Lower than previously reported growth tells us productivity has not been as strong as we previously thought but also that output gap measures will now also be revised lower.  This helps explain recent inflation incomes that have continued to surprise on the downside.

Looking ahead I’m keeping my forecasts unchanged at this point which means I’m continuing to expect a period of above trend growth and that it will be appropriate for the RBNZ to resume interest rate hikes in the second half of next year.