Thursday, March 19, 2015

Data Insight: NZ GDP

  • New Zealand’s December 2014 quarter GDP growth came in at +0.8% qoq, bang on market expectations and a little stronger than our own forecast of +0.7%.  Annual growth came in at +3.5% with annual average at +3.3%, the strongest since 2007.
  • The sectoral breakdown was much as expected with strong growth recorded over the quarter in retail trade and accommodation, financial and insurance services and manufacturing.
  • The growth outlook remains one of plusses and minuses.  Plusses will continue to be residential construction (particularly in Christchurch and Auckland), population growth via net migration, still relatively low interest rates, strong business investment on the back of robust confidence and the low cost of capital, strong consumption growth underpinned by strong employment growth and higher real incomes as headline inflation approaches zero and, further out, accelerating average trading partner growth. 
  • The minuses will be the still strong New Zealand dollar (especially against those currencies where central banks are easing monetary policy such as the Euro zone, Japan and Australia), fiscal drag as the Government continues to keep fiscal conditions tight in pursuit of fiscal balance, drought and lower dairy prices.
  • That mix of factors has the New Zealand economy set to maintain growth of around 3% per annum for the next two years.  Compared to our previous forecasts that means we see 3% growth being maintained for longer as interest rates remain on hold for a period of time and we see a more muted than expected decline in the terms of trade.  We expect annual average growth of 3.1% in 2015 followed by 3.2% in 2016.  The cycle then turns down further out as interest rates rise further, we pass the peak in the Canterbury rebuild and the migration cycle turns.
  • For a more fulsome commentary on the outlook for the New Zealand economy and the implications for interest rates and the share market, have a read of our latest New Zealand Insights which you can find here.