New Zealand Economy Grew More Than Forecast in Third Quarter

  • GDP growth of 0.9% exceeds economists' median estimate of 0.8%
  • Faster growth underscores RBNZ signal easing cycle may be over

New Zealand’s economy grew more than economists forecast in the third quarter, buoyed by manufacturing and retail spending, which offset a drop in milk production.

Gross domestic product grew 0.9 percent from the second quarter, when it rose a revised 0.3 percent, Statistics New Zealand said in Wellington Thursday. The third-quarter expansion exceeded the 0.8 percent median forecast of 16 economists surveyed by Bloomberg News. GDP rose 2.3 percent from a year earlier.

Faster economic growth underscores the Reserve Bank of New Zealand’s signal last week that it expects to return inflation to the midpoint of its target zone without further interest-rate cuts. The central bank expects rising export prices, improved business confidence, low borrowing costs and record immigration to further bolster the economy’s expansion next year.

“Today’s solid data is consistent with a period of stability” in the benchmark interest rate, Mark Smith, senior economist at ANZ Bank New Zealand Ltd., said in a research note. “But given the inflation backdrop, the risk profile is skewed to the downside.”

New Zealand’s dollar initially rose after the data, then fell and was trading at 67.51 U.S. cents at 12:21 p.m. in Wellington from 67.88 cents immediately before the release.

Annual Growth

Annual growth slowed from 2.4 percent in the second quarter and is the weakest since late 2013. GDP expanded 0.5 percent in the first half after second-quarter growth was revised down from 0.4 percent.

The economic revival has been bolstered by a surge in spending by tourists amid a 12 percent slide by the New Zealand currency in the past year. The retail trade and accommodation industry grew 6 percent from a year ago, the quickest of 16 industries measured in today’s report.

RBNZ Forecasts

The RBNZ last week raised its forecast for annual growth through March 2016 to 2.4 percent from the 2.2 percent pace it projected three months earlier. It expects growth to accelerate to 3.1 percent by March 2017.

RBNZ Governor Graeme Wheeler on Dec. 10 cut the official cash rate for a fourth time this year, returning it to a record-low 2.5 percent. He said he was prepared to lower borrowing costs further “if circumstances warrant” and listed a prolonged El Nino-induced drought and a renewed slump in export prices as possible reasons to act again.

El-Nino Impact

Treasury has factored in a 0.3 percentage point impact from an El Nino weather event “but the final result could be larger,”  Finance Minister Bill English said in a statement Thursday. The department this week projected economic growth would slow to 2.2 percent in the fiscal year through March 2016 before picking up to 2.7 the following year.

Five of 17 economists predict the cash rate will fall at least another quarter point by the middle of 2016.

Third-quarter growth was led by increases in manufacturing and services industries, Statistics New Zealand said. Farm output was unchanged as dairy production declined.

Milk Collection

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, this week said it expected milk collection in 2015-16 to be 6 percent less than last season as falling incomes force New Zealand farmers to cull herds and stop using feed supplements. Dairy prices have stabilized after slumping to a 12-year low in August.

  • Manufacturing rose 2.8 percent in 3Q -- the most since the fourth quarter of 2012 -- led by food and beverages
  • Nine of 11 services industries expanded, led by legal and accounting, wholesale trade and retailing
  • Construction fell 2.9 percent amid less civil engineering and non-residential building

Measured by spending, rather than output, GDP grew 1.2 percent from the second quarter.

  • Household spending increased 0.6 percent
  • Investment was led higher by transport and machinery
  • Exports gained 1.9 percent while imports slumped due to a sharp fall in gasoline purchases, which had jumped in the second quarter when the nation’s oil refinery was closed
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