NZ: Expect production-based GDP growth of 0.7% q/q in Q4 - ANZ

Research Team at ANZ expects New Zealand’s production-based GDP growth of 0.7% q/q in Q4 and while that would be a step down from Q3’s 1.1% q/q pace (and risks are perhaps downwardly skewed), annual growth would hold at a respectable 3.2% y/y.

Key Quotes

“However, strong population growth will mean per capita figures look mediocre, with quarterly growth of just 0.1% (1.0% y/y).”

“Primary industries looks set to drag on growth. Poor spring weather conditions hampered milk production and other elements of agricultural activity. This, together with a partial retracement of last quarter’s surge in forestry and logging activity, is expected to see the sector contract 1.6% q/q overall.”

“This should be offset by reasonable services sector growth. We have pencilled in a 0.7% q/q lift, boosted by further solid growth in professional and administrative services, arts, recreation and other services, and health care and social services. Some of this is clearly related to strong population growth. Rental and real estate services activity is expected to expand, but at its softest quarterly pace in three years, which is consistent with cooler housing market activity.”

“Goods production is expected to have risen 0.3% q/q. Stronger construction activity (around 1.5% q/q) looks set to be partially offset by a dip in manufacturing activity, with primary food production also expected to contract on poor spring weather.”

“We wouldn’t be surprised if expenditure GDP undershot its production equivalent, having surpassed it by a reasonable amount over the past three quarters. At the components level, the figures are likely to be mixed. After some strong growth, private consumption growth is likely to be more modest, while residential and other fixed asset investment should both record respectable growth. Inventories are likely to contribute positively, with net exports dragging on activity.”

“Market implications

While growth in line with our view could be perceived as soft, especially with some cyclical indicators continuing to roll over, it is important to look at the drivers behind it. We still believe it primarily reflects tighter supply conditions (capacity) rather than softer demand, and that presents quite a different backdrop for the outlook for inflation and the RBNZ.”