NZ Q3 GDP And November Merchandise Trade

NZ Q3 Gdp And November Merchandise Trade

Data Flash (New Zealand)
NZ Q3 GDP AND NOVEMBER MERCHANDISE TRADE

Key Points - Q3 GDP GDP (production based) increased by +0.7% qoq in Q3, exactly in line with the median market expectation. This outcome is marginally weaker than the +0.8-1.0% qoq expected by the RBNZ.

Revisions to previous data - largely relating to Q4 1999 - meant that the year-on-year growth rate printed at 2.4%, 0.2pps above the median market expectation.

The breakdown of growth amongst the various production sectors was much as expected, with a strong bounce in agriculture - due to the resumption of the dairy season - contributing 0.2pps to growth. Growth in the manufacturing sector also contributed 0.2pps to the result.

Due to problems encountered by Statistics New Zealand while attempting to introduce the revised chain-weighted methodology, no expenditure-based GDP data for Q3 will be published until next year (the date is still to be determined).

Key Points - Merchandise Trade Statistics NZ reported a provisional trade deficit of $466m for the month of November compared with a deficit of $746m in November 1999. The annual deficit fell to $2,636m from $2,917m in October.

The market expectation had been for a deficit of around $360m. Both export and import values printed stronger than market expectations, the latter more so. The estimated level of exports in November was 31.2% higher than a year earlier, while exports for the three months to November were 28.5% higher than a year earlier. We estimate that export prices in Q4 2000 will print a little under 24% higher than a year earlier. Given our expectation for December, growth in export volumes of around 7% yoy is expected in Q4. Detailed export data will be made available with the final trade release on 19 January.

The estimated level of imports in November was 13.2% higher than a year earlier, while imports for the three months to November were 16.5% higher than a year earlier (22.2% higher excluding imports of `lumpy' capital transport equipment). We estimate that import prices in Q4 2000 will print a little under 20% higher than a year earlier, implying that import volumes are flat or falling in yoy terms, in keeping with subdued consumer demand, a sharp decline in building activity, and the increased competitiveness of New Zealand production due to the weak NZD.

Commentary

The outturn for Q3 GDP was in line with our expectation (which was also the market median) but perhaps a little weaker than expected by the RBNZ. However, with confidence indicators rebounding sharply in recent weeks, we suspect that the RBNZ remains comfortable with the broad economic view expressed in its 6 December Monetary Policy Statement, as least as far as the near-term profile for the economy is concerned.

Beyond the near-term, the possibility of a more pronounced slowdown in world activity - especially in the US - continues to pose downside risk to the economic outlook. Although we think that the cyclical position of the New Zealand economy leaves it well-placed to sustain reasonable growth compared to previous slowdowns in the world eonomy, a `hard landing' scenario would clearly have a moderating impact on both export volumes and prices, thus reducing inflation stresses in the economy. Although we would not rule out a rate hike in January, we think it more likely that the RBNZ will want to wait for more evidence of the extent of the slowdown in the US before contemplating the initial 25bp rate hike foreshadowed on 6 December. The strengthening NZD and recent downward revisions to headline inflation for 2001 (the latter largely due to the impact of the treatment of reductions in state house rentals) also argue against an urgent January tightening. Our central forecast remains for a 25bp rate hike on 24 March.

The trade outcome was around $100m weaker than the market was expecting and around $40m weaker than factored into our own forecasts. This error was more than explained by very high oil imports for the month (the excess likely to be unwound next month) and the import of a ship (which if leased, will not impact on the Balance of Payments). Excluding oil and imports of capital transport equipment, the trade balance in November 2000 was around $350m better than a year earlier.

As discussed in previously, we believe that the conditions are now in place for a significant improvement in the current account deficit, driven largely by an improving trade balance. Following the better than expected Q3 outcome, we now expect the annual deficit to fall to between 5.0-5.5% of GDP in Q4 (assisted by the removal of last year's frigate from the annual calculation) and to around 4.5% of GDP by March 2001. Thereafter, we continue to believe that a deficit of below 3% of GDP is achievable within an 18-24 month horizon.

Darren Gibbs, Senior Economist, New Zealand,

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