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GDP growth of 1.1% qoq estimated in Q1 2002

Data Flash (New Zealand)

Release date: Friday 28 June, 10.45am (NZT)

Deutsche Bank forecasts: 1.1% qoq / +3.8% yoy / 3.1% ann. av., balanced risk

Market forecast: 1.0% qoq/ +3.8% yoy / 3.1% annual average (range 0.8% -1.5%)

RBNZ May MPS forecast: 1.0% qoq / + 3.8% yoy

Key Points

After receiving the final set of partial indicators, we have settled on 1.1% qoq as our estimate of growth in the production-based measure of GDP during Q1 (this is just 0.1pp weaker than our preliminary estimate). With the exception of the forestry, mining and construction sectors, growth is estimated to have occurred broadly. A rebound in the transport and energy industries (reflecting a recovery from the 11 September tragedy and midwinter electricity crisis respectively) contributes around 0.2pps to growth.

Although significant divergence between the production-based and expenditure-based measures is commonplace, we are encouraged that our estimate of the expenditure-based measure of GDP is also 1.1% qoq. Very strong growth in private consumption and a small contribution from net exports is expected to have been offset only partially by a substantial decline in investment spending (both plant and machinery investment and construction declined sharply in Q1).

In our view, two weeks out from the RBNZ's next meeting, the odds still strongly favour a further 25bp rate hike, taking the official cash rate (OCR) to 5.75%. Although the RBNZ signalled in May that a 50bp hike should not be ruled at the 3 July meeting, a variety of factors have subsequently led the market to price out that possibility. Indeed, the market is now priced for no more than 25bps at each of the 3 July and 14 August meetings. In our view, this is the most that the RBNZ will deliver - we think there is a 25% chance that the RBNZ decides to skip the 3 July meeting altogether. Certainly, if the decision were ours to make, we would be giving serious consideration to leaving rates unchanged at that meeting.

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