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Preview NZ Q1 GDP estimated at +1.0% qo

Data Flash (New Zealand) - Preview NZ Q1 GDP estimated at +1.0% qo

QKey Points

Release date: Monday 26 June, 10.45am (NZT)

Deutsche Bank forecasts: Production GDP: +1.0% qoq;+5.6% yoy Expenditure GDP: +1.0% qoq;+5.7% yoy

Forecast risk: Balanced

RBNZ forecast: Production GDP: +0.6% qoq;+5.1% yoy

Market expectations (Average so far): Production GDP:+0.7% qoq. Range: +0.4%/+1.1% qo

Q Comment

On the basis of indicators now available we have revised our estimate of Q1 GDP growth to +1.0% qoq (on both a production and expenditure basis).

On a production basis, we expect a modest contribution from the primary goods sector as a result of continued further growth in dairy production. Goods industries make a strong contribution, largely due to an estimated +11% qoq growth in value added in the construction sector. Value added in the manufactured sector is estimated to have grown a more modest +0.5% qoq. The service sector is expected to make its 12th consecutive positive contribution to overall growth reflecting continued strong growth in the communications sector in particular.

On an expenditure basis, investment (driven by construction) and exports make strong positive contributions to growth. Following the Y2K related build in Q4, stocks make a negative contribution to growth. The fall in public consumption in Q1 (matched by lower imports and thus a positive import contribution to growth) reflects the purchase of a naval frigate in Q4.

Our estimate is somewhat stronger than the RBNZ's May MPS forecast of +0.6% qoq, implying a slightly larger positive output gap in Q1. However, given the apparent slowing in domestic demand, we expect growth in Q2 and Q3 - at 0.2% and 0.6% respectively - to fall well short of the RBNZ's forecast of 1.1% per quarter. Therefore the output gap is likely to exert lower pressure on inflation over 2001 than the Bank thought likely when compiling its May forecasts.

However, as in Q4, last week's trade indexes revealed that the RBNZ has seriously underestimated growth in import prices in Q1. The level of import prices stands some 5% higher than expected by the Bank in May, with price rises seen in a wide range of intermediate and capital goods (not just oil). As a result, the lower output gap over 2001 is necessary to avoid the need for a further tightening in monetary conditions beyond that already signalled in May (the Bank projects 90 day rates to rise to around 7.5% by mid next year).

Production GDP: Contributions to Expenditure GDP: Contributions to %qoq %qoq Primary Industries 0.1 Private Consumption 0.3 Goods Industries 0.5 Public Consumption -2.1 Services Industries 0.4 Investment 1.1 Government 0.0 Stocks -1.7 Dwellings 0.0 GNE -2.5 Unallocated 0.0 Imports 2.6 Exports 0.9 GDP 1.0 GDP 1.0 Source: DB Global Markets Research

Darren Gibbs, Senior Economist, New Zealand, (64) 9 351-1376

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