December 2015 quarter GDP growth came in at +0.9% for the quarter, stronger than both market and RBNZ expectations that had gravitated to an expected increase of +0.7%. Annual average growth for calendar 2015 was +2.5%.
The make-up of the result was largely as expected with construction and retail sales showing strong growth in activity. The upside surprise over the quarter was mostly on the services side of the economy.
The outlook for the economy remains one of the degree to which some large positive and large negatives offset each other. On the positive side of the equation population growth, construction and strong tourism activity are key supports for the economy. However, the challenges in the dairy sector are a significant negative. On balance we expect another year of modest growth in 2016 – our current forecast is for annual average growth of 2.6% in calendar 2016.
We see no implications for the RBNZ in this result. While growth over the quarter was somewhat stronger than the Bank was expecting, we think their quarterly forecasts for the first half of 2016 (0.7% and 0.8% for March and June quarters respectively) look a bit on the optimistic side. We are expecting 0.6% in each of those quarters. We therefore see the Bank delivering their already-signaled interest rate reduction in either April or June.