New Zealand Economy Grows Faster Than Forecast

• New Zealand Economy Grows Faster Than Forecast

New Zealand’s economy grew faster than economists forecast last quarter as construction boomed and consumer spending increased.

While revisions to prior periods resulted in annual growth coming in below expectations, recent confidence indicators add to signs demand will remain strong and help spur inflation in 2017.

Key Points

• Gross domestic product gained 1.1% from the previous quarter, when it rose a revised 0.7% that was lower than first reported; economists forecast a 0.8% gain
• The economy expanded 3.5% from a year earlier, lower than the 3.6% estimate
• The kiwi dollar was little changed at 69.03 U.S. cents as of 12:10 p.m. in Wellington

Big Picture

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. That’s expected to help the central bank return inflation to the midpoint of its 1-3 percent target, with Governor Graeme Wheeler last month signaling further interest-rate cuts are unlikely to be needed.

Economist Takeaways

• “The economy is clearly very strong and it will probably continue to grow by an impressive 3.5% next year,” said Paul Dales, chief Australia and New Zealand Economist at Capital Economics in Sydney. “That would increase the chances that underlying inflation rises back to more acceptable rates.”
• “While these GDP data were somewhat above RBNZ expectations, we assess they are not sufficiently different –- particularly once data revisions are taken into consideration — to alter our central scenario for the RBNZ to keep the OCR unchanged at 1.75% over the whole of 2017,” said Chris Green, director, economics and strategy at First NZ Capital in Auckland.

Other Details

• Construction increased 2.1% from the second quarter, when it rose a revised 2.6%
• Manufacturing was led higher by beverage and equipment production
• Farm output fell 1.6% amid a slump in milk collection; forestry gained
• Services, which make up 70% of the economy, expanded 1.1%
• Measured by spending, rather than output, GDP grew 1.4% from the second quarter
• Household spending jumped 1.6% led by accommodation, airfares and meals out
• Investment rose 1.4% led by residential building, telecommunications and aircraft
• Exports of goods fell led by meat as imports increased