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GDP (Q3), Merchandise Trade (Nov) and Confidence

Data Flash (New Zealand)
GDP (Q3), Merchandise Trade (Nov) and Consumer Confidence

Gross Domestic Product (Q3)

GDP (production measure) rose 0.2% qoq in Q3, following a revised 1.8% qoq increase in Q2 (previously recorded as +2.0%). The median market expectation had been for a quarterly rise of 0.3%. GDP in Q3 was 2.5% higher than a year earlier while the annual average increase over the year to September was 2.1%.

Production sector breakdown: Results for the energy sector (-8.6% qoq) and the manufacturing sector (-1.8%) reflect the impact of the winter electricity crisis. The primary sector grew by 1.4% qoq, while construction recorded a 0.9% increase. The service sector grew by 1.1% qoq, driven by a strong contribution from the transport and communication sub-sectors.

The expenditure-based measure recorded an increase of 0.7% qoq. The significant gap between the expenditure and production GDP measures is not uncommon and usually reverses over time.

Expenditure breakdown: The household sector contributed consumption growth of 0.5% and an increase in residential construction of 2.9%. Following a significant rundown in stocks in Q2, a positive stocks contribution of 1.9% was recorded for the September quarter. An offset was provided by investment activity (down 4.9% qoq) and lower exports (-2.1%).

The GDP deflator fell by 0.4% qoq in the September quarter, but was 4.2% higher than last year. The GNE deflator - which best reflects the prices of goods and services purchased in New Zealand - rose 0.2% qoq and was up 2.5% yoy.

Merchandise Trade (November)

A provisional merchandise trade deficit of $315m was recorded in November, somewhat worse than the median market expectation of $261m.

Nevertheless, the annual trade surplus rose from $796m to $862m. That figure compares to a deficit of $2,543m a year ago.

Growth in export values has slowed further, due to a combination of weaker volume growth and falling agricultural commodity prices. The year-on-year rate of export growth was around 20% six months ago, has continually fallen since then, and recorded -3.8% in the latest month.

Import values have stabilised at a high level in the last month despite low crude oil shipments. Passenger motor cars continued to record strong growth (up 47% on last year), with plant and machinery investment recovering somewhat from relatively weak months in September and October.

Consumer Confidence

The WestpacTrust McDermott Miller index of consumer confidence rose to 118.7 from a reading of 115.8 three months ago. A reading greater than 100 indicates that the number of optimists exceeds the number of pessimists.

The rise was in line with other consumer confidence indicators received over recent weeks, which were all suggesting a recovery from the post-September lows.

The regional breakdown shows that the main centres have become more confident, while sentiment in the rural areas has weakened somewhat, consistent with the softening of agricultural commodity prices over recent months.

Commentary

We estimate that the electricity crisis subtracted around 0.4 ppts from the Q3 GDP result. That factor is likely to be reversed for Q4. While that is expected to lead to quarterly growth of 0.6%, we forecast the underlying growth profile to weaken a little further over coming quarters. Latest trade data has confirmed the softening in export receipts. Furthermore inbound tourism numbers are down significantly and we expect the deferral of investment projects to make a downward contribution to GDP growth over coming quarters. On the positive side, latest consumer confidence data suggest that the household sector will support domestic demand through consumption growth and residential construction activity. The latter is also being fuelled by strong net inward migration.

In terms of a bottom of this GDP cycle, our recent forecasts suggested growth to slow to 1.5% yoy. Firms' collective assessment of their own trading prospects, as measured by the latest NBNZ business survey, suggests that that may be too pessimistic.

As far as the RBNZ is concerned, the Q3 GDP result was weaker than their expectation of +0.6% qoq. But that is likely to be offset by Q4 being stronger than the RBNZ's forecast of zero growth, which suggests that there are no direct implications from today's release for monetary policy. However, judging by the positive confidence and trading partner growth surveys published over the past week, the probability of another rate cut seems to have reduced from the 30% level we had assumed earlier. Our central view remains that the RBNZ has finished the easing cycle and will start the re-tightening process in Q3 of next year.

Ulf Schoefisch, Chief Economist, New Zealand


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