Thursday, September 17, 2015

NZ GDP - weaker than expected, but where?

New Zealand June quarter GDP came in weaker than expected at 0.4% qoq.  Forecasts were for an increase of +0.6%.  Annual (+2.4%) and annual average (+3.0%) measures came in closer to expectation thanks to positive revisions.

The high-level breakdowns saw Primary Industries post a quarterly rise of +2.1%, the Goods-producing Industries rose +0.4% while Service Industries posted a +0.5%.  However, total GDP managed only +0.4%.  The reason lies in the usually innocuous and always mysterious “balancing item” which made a significant negative contribution over the quarter.  Make of that what you will. 

At a finer level of detail each of the sectors came in largely as expected.  The agriculture and mining sectors showed the expected bounce-back from the weak March quarter, construction posted a modest rise and manufacturing saw a modest contraction.

But there’s no getting past the fact that this is another soft GDP result.  The economy has expanded a relatively miserly +0.6% in the first six months of the year and on our current forecasts annual growth looks set to dip below 2.0% in the year to September. 

The good news is that financial conditions are significant easier than they were just a few months ago.  The exchange rate is 15% lower on a trade-weighted basis and the Reserve Bank of New Zealand has been reducing interest rates which will help support growth in the period ahead.  We expect the RBNZ will cut the Official Cash Rate again in October.