New Zealand Economy Grows Fastest in 2 Years Amid Building Boom

Updated on
  • Annual GDP expansion of 3.6% matched economist expectations
  • Economy remains one of fastest growing in developed world

New Zealand’s economy grew at the fastest annual pace in two years last quarter as construction boomed and manufacturing rebounded.

  • The economy expanded 3.6% in the second quarter from a year earlier, matching estimates and the most since the final quarter of 2014; growth accelerated from a revised 3% in the first quarter
  • Gross domestic product grew 0.9% from the first three months of the year, when it rose a revised 0.9%; economists forecast a 1.1% gain

Surging immigration, record-low borrowing costs and a housing boom are stoking New Zealand’s economy, which is among the fastest growing in the developed world. While the expansion is expected to help the central bank’s efforts to return inflation to its target, Governor Graeme Wheeler last month said the official cash rate will need to fall further. Economists expect another cut to 1.75 percent in the fourth quarter.

“We believe that the underlying momentum in New Zealand growth lifted firmly over the first half of 2016 and could even be stronger than the second-quarter GDP figures suggest,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. “While all this is very encouraging, we continue to expect further rate cuts as the lack of inflation remains the key focus for the Reserve Bank of New Zealand.”

Kiwi Falls

New Zealand’s dollar edged lower after the report as quarterly growth missed economists’ expectations. It bought 72.71 U.S. cents at 11:52 a.m. in Wellington from around 72.86 cents immediately before the data. The kiwi has gained 14.5 percent against the greenback in the past year.

The RBNZ last month estimated the economy grew 0.8 percent in the June quarter. Economists increased their forecasts after reports in early September showed second-quarter construction rose more than twice as much as expected, along with a 2.8 percent jump in manufacturing sales.

“Looking ahead, the momentum in construction activity will continue for a while yet, but the 15 percent strengthening in the dollar over the past year will soon become a headwind,” said Paul Dales, chief Australia & New Zealand economist at Capital Economics in Sydney. “So while we are revising up our GDP growth forecast for the 2016 calendar year from 2.7 percent to 3 percent, we don’t believe that the economy will continue to grow by more than 3.5 percent for long.”

New Zealand’s annual growth rate compares with 3.3 percent in Australia, 2.2 percent in the U.K and 1.2 percent in the U.S.

Housing Boom

Second-quarter growth was led by a 1.9 percent gain in goods-producing sectors, as construction surged and manufacturing increased for the first time in three quarters, Statistics New Zealand said in Wellington Thursday.

The housing boom aided growth through increased production of cement and glass, and through more property transactions, as well as home building, today’s report showed.

  • Construction increased 5% from the first quarter, when it rose a revised 5.1%
  • Manufacturing was led higher by an 11% jump in glass, cement and concrete production; meat processing also increased
  • Farm output gained 1.8% led by dairy production
  • Services, which make up 70% of the economy, expanded 0.7%

Measured by spending, rather than output, GDP grew 1.2 percent from the first quarter and 3.8 percent from a year earlier, the statistics agency said.

  • Household spending gained the most in seven years on accommodation and dining out
  • Investment rose 3.1% led by residential building and transport equipment
  • Exports of goods rose 7.6% -- the biggest jump in 18 years -- amid a rundown in dairy inventories, while services exports declined
  • Imports of goods rose led by purchases of capital goods
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