NZ GDP came in at a better-than-expected 0.9% in the September quarter (market consensus +0.8%, RBNZ +0.6%). Annual growth came in at +2.3% with annual average holding up at a still impressive +2.9%.
The strong quarterly growth rate is part solid underlying growth (which we think is running at around +0.6-0.7% per quarter), part pay-back for the weak start to the calendar year and part higher meat processing reflecting low dairy/high meat prices and impending drought. With all that going on its important not to take the strength in the result, especially when compared to the RBNZ’s forecast, at face value.
History has been revised up with annual average growth for calendar 2014 revised up from +3.3% to +3.7%. That makes the lack of inflation over that period even more surprising than it already was!!
The outlook remains for solid growth of around 2.5-2.7% per annum over the next couple of years. But with likely continued benign inflationary pressures reflecting a near-term rise in the unemployment rate and soft increases in unit labour costs, this result won’t change the RBNZ’s comfort with interest rates now back to 2.5%.
The RBNZ has flagged they are now more than likely on hold. The key risk to that view is a period of drought in early 2016 that hits production hard. That makes the risk to interest rates still biased to the downside but that will remain dependent on the data…and the weather.