New Zealand economic growth accelerated last quarter

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New Zealand economic growth accelerated during the June quarter, rising 0.8% following an upwardly-revised 0.6% increase in the first three months of the year.

The result was in line with market expectations.

Source: StatsNZ

On a production basis, Statistics New Zealand (StatsNZ) said that retail trade and accommodation expanded by 2.8%, driven by an increase in accommodation and food and beverage services.

“The World Masters Games and Lions’ rugby tour increased tourist spending on accommodation, food, and beverages — boosting a usually quieter time of year,” said Gary Dunnet, national accounts senior manager at StatsNZ.

Elsewhere manufacturing grew by 1.8% on the back of food, beverage and tobacco production while transport, postal and warehousing grew by a larger 3.5%.

Those gains were offset by continued weakness in construction activity which fell 1.1% following a 2.1% contraction in the March quarter.

“The latest fall reflected lower construction-related investment, including investment in non-residential and residential buildings and infrastructure,” said StatsNZ.

In total, 11 of 16 industries expanded during the quarter.

Source: StatsNZ

Despite the acceleration in quarterly GDP, growth in the 12 months to June slowed to 2.7%, down from 2.9% in the year to March. That missed expectations for an increase of 2.8%. In current prices, the size of the New Zealand economy stood at $NZ26 billion.

From the same quarter a year earlier the economy grew by a smaller 2.5%.

On an expenditure basis, StatsNZ said that the economy grew by 1.1%, up from 0.5% in Q1 but below the 1.2% increase expected.

“Strong export and domestic demand underpinned growth this quarter,” said Dunnet. “Demand for exports has resulted in strong production growth in manufacturing and service industries.”

Statistics New Zealand said exports jumped by 5.2% during the quarter, driven by a surge in goods exports which posted its biggest quarterly increase in nearly 20 years.

“This was driven by exports of dairy and forestry products,” it said. “Robust demand for dairy exports was reflected in increased dairy production and dairy product manufacturing, while dairy inventories ran down from their build-ups in recent quarters.”

Imports grew by a smaller 0.6% while household consumption rose by 0.9%, driven by spending on services and durable goods.

Inventories were reduced by $NZ228 million while fixed asset investment fell 0.8% on the back of weaker construction activity.

Source: StatsNZ

Reflecting strong levels of population growth, StatsNZ said that GDP on a per capita basis grew by a smaller 0.3%, up from a flat outcome in the March quarter. Over the year it increased by 0.6%.

There has been negligible reaction in financial markets to the GDP release, perhaps reflecting the view that it has little implication on the outlook for monetary policy settings from the RBNZ.

“Despite the second-quarter’s decent result, it looks as though GDP growth in 2017 as a whole will fall a little short of our 3.0% forecast,” said Paul Dales, chief Australia and New Zealand economist at Capital Economics.

“2.7% looks more plausible. That would be more or less the same as the RBNZ’s calendar year forecast of 2.8%. But we doubt that growth will accelerate to 3.8% in 2018, as the RBNZ expects. We think 3.0% is more likely.”

Regardless of the New Zealand federal election outcome this weekend, Dales says that interest rates in New Zealand are unlikely to rise until the second half of 2019.

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