UPDATE: NZ economy still 'performing well' as construction, tourism boom

Thursday 22nd December 2016

New Zealand's economy continued to perform well in the September quarter with broad-based growth underpinned by a booming construction sector and record tourism.

Gross domestic product grew 1.1 percent in the three months ended Sept. 30, accelerating from a revised 0.7 percent pace in the June quarter, Statistics New Zealand said in a statement. That beat the Reserve Bank's expectations for growth of 1 percent and a 0.9 percent pace predicted in a Reuters survey of economists. The economy grew 3.5 percent from the same period a year earlier.

"The New Zealand is still performing well with growth still above trend," said Kiwibank chief economist Zoe Wallis. "It's a pretty solid outlook and remains pretty buoyant, driven by a lot of factors."

Construction continued to feature prominently in the data, expanding 2.1 percent in the quarter and up 12 percent from a year earlier, with both residential and non-residential driving activity in a country facing a mammoth pipeline of work and increasingly stretched capacity. Business services grew 2 percent in the quarter, driven by activity in scientific, architectural and engineering services, while rental, hiring, and real estate services grew 0.4 percent and manufacturing expanded 1.2 percent.

Statistics NZ said all of the construction's sub-industries expanded in the quarter, reflecting "higher construction-related investment, with continued investment in residential building."

The other arm of New Zealand's growth this year has been on the consumption side as an expanding population and record levels of tourism stoke consumer demand. Retail trade and accommodation activity expanded 0.9 percent in the quarter, and was 5.7 percent higher than a year earlier.

The transport sector was also a driver of economic activity, expanding 3.7 percent in the quarter to be 4.7 percent higher than a year earlier, mainly in road and air services.

Kiwibank's Wallis said tourism's boom wasn't just from the record number of foreign visitors, but also with domestic travel as cheap oil makes driving more affordable, while Jetstar's heightened competition drags down the cost of air travel.

New Zealand's increasing population has largely been soaked up by employers looking for staff, limiting wage gains in recent years and stifling inflation. That's also meant per capita growth has been anaemic this year, though today's data show GDP per capita expanded 0.6 percent in the September quarter and was up 0.9 percent on an annual basis. Real national disposable income per capita, which measures the purchasing power of the nation's disposable income, rose 0.6 percent in the quarter for a 1 percent annual gain.

Wallis said that was still below average, but "should be trending higher gradually" with the headline number.

On an expenditure measure, GDP grew 1.4 percent in the quarter, its biggest quarterly expansion since March 2011, and accelerating from a 1.2 percent pace of expansion in June. That was driven by a 1.6 percent increase in household spending.

The GDP expenditure measure grew 4.5 percent from a year earlier, underpinned by the country's housing boom which drove a 14 percent increase in residential building investment.

Gross fixed capital formation increased 1.4 percent, with a 30 percent surge in investment in transport equipment due to increased spending on air transport. However, business investment was more muted, rising 0.2 percent with investment in plant, machinery and equipment shrinking 6.5 percent and investment in intangible fixed assets down 1.8 percent.

The market had a muted response to the data, with the kiwi dollar recently trading at 69.01 US cents from 68.99 cents immediately before the release. Two-year swap rates increased two basis points to 2.43 percent.

ANZ Bank New Zealand chief economist Cameron Bagrie said in a note that the figure will cement market nuances in regard to odds of the RBNZ winding back stimulus in the back half of 2017", however, ANZ isn't "in that camp yet".

Bagrie said New Zealand's strong economic growth, relatively attractive yields and political stability should temper some of the currency's decline, and while a "strengthening USD might be front of mind", New Zealand's "credentials demand respect, so expect elevation and support against other crosses." The trade-weighted index was recently at 76.97 from 76.91 immediately before the release.

The country's primary sector was the laggard in the quarter, with agricultural activity shrinking 1.6 percent on lower dairy production and sheep and beef cattle farming. New Zealand's milk collection is expected to fall this season after farmers culled stock to shore up their balance sheets, which were stretched by weak dairy prices. Those prices have since rallied through the latter half of the year, and dairy farmers are now anticipating better returns this season.

New Zealand's balance of payments, also released today, showed the current account deficit widened to $4.89 billion in the September quarter from a revised deficit of $932 million in the second quarter, largely due to a seasonal fall in exports of merchandise goods. The annual deficit of $7.48 billion, or 2.9 percent of GDP, compared to a deficit of $7.37 billion, 2.9 percent of GDP, in June.

The net international liability position was $166.22 billion, or 64.9 percent of GDP, from a revised $162.99 billion, or 64.4 percent of GDP, in the prior quarter.

ASB Bank senior economist Jane Turner said the current account deficit held steady when analysts were expecting a widening of the shortfall.

"The recent theme of strong services exports offsetting soft goods exports continued. Meanwhile, the investment income deficit was relatively steady over the quarter," Turner said in a note. "Heading into 2017, we expect improving goods exports via higher dairy prices to result in a steady, if not narrower, current account deficit."

BusinessDesk.co.nz

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