GDP grew 0.9% in June qtr; up 3.6% from June qtr of 2015; slightly below economists' forecasts; unchanged from revised-up March qtr; construction up 5% in June qtr while household consumption up 1.9%

By Bernard Hickey

New Zealand’s Gross Domestic Product rose 0.9% in the June quarter from the March quarter, driven mostly by strong construction activity and household consumption growth.

Annual growth of 3.6% included the effects of population growth 2.0% for the year, leading to per-capita GDP growth of 0.7% for the year, the slowest growth in a June year in five years.

The result was slightly below economists’ forecasts for growth of around 1.1% for the quarter and included a 1.7% fall in spending by overseas tourists. The per capita growth was in line with expectations. The New Zealand dollar dropped around 20 basis points to 72.8 USc after the result.

The number was also bolstered by a 7.6% increase in goods exports, although Statistics New Zealand cautioned that it was driven partly by a run-down in inventories built up during the March quarter. Construction grew 5.0% in the quarter, while household consumption grew 1.9%. Gross Domestic Expenditure for the quarter was 1.2% and ran ahead of production growth of 0.9%.

GDP was 3.6% higher in the June quarter than a year ago and real per capita GDP grew 0.5% in the quarter and was up 0.7% from a year ago. The GDP growth of 0.9% in the March quarter was revised up from 0.7%. Growth for the full year to June from a year ago was 2.8%, while GDP per capita growth for the full year was 0.7%.

Real Gross National Disposable Income per capita, which takes into account the purchasing power of output given New Zealand’s Terms of Trade, fell 0.1% in the June quarter, although it rose a revised 1.5% in the March quarter. Over the full year RGNI per capita rose 0.5%.

Economist reaction

Economists said the result for the June quarter was a touch below expectations, driven partly by the surprise fall in tourism spending, but was offset by the revision higher for the March quarter.

“All up, annual growth is materially higher than the RBNZ believed at the August MPS,” ASB’s Nick Tuffley said.

“On balance, this may create some reluctance from the RBNZ to cut the OCR below 1.75% next year – after delivering one more cut in November,” he said.

“Nonetheless, in light of continued weak inflation, and despite strong growth, we continue see a high chance of a further cut next year should inflation indicators continue to print on the weak side.  We also expect the RBNZ will cut the OCR to 1.75% in November.”

Tuffley said the lift in per capita GDP was very positive.

“We believe that the underlying momentum in NZ growth lifted firmly over H1 2016 and could even be stronger than the Q2 GDP figures suggest,” he said.

“While all this very encouraging, we continue to expect further rate cuts as the lack of inflation remains the key focus for the RBNZ at this time.”

Westpac’s Michael Gordon said the data changed little for the Reserve Bank.

“Despite the slightly softer headline GDP growth figure, upward revisions to Q1 mean there is little in today’s data to change our view on the likely timing of RBNZ rate cuts,” he said.

“Estimates of capacity pressure (and therefore inflation) are likely to be broadly in line with expectations following today’s data,” he said.

(Updated with more detail, reaction)