NZ economy probably grew 0.75% in 4th quarter helped by migrant tailwind

Friday 10th March 2017

New Zealand’s economy likely continued to expand in the fourth quarter of 2016, bolstered by the ongoing surge in migration but weaker output in the primary and manufacturing sectors is tipped to weigh on growth.

The gross domestic product likely grew 0.75 percent on quarter in the fourth quarter, according to the median of eight economists in a BusinessDesk survey, slower than the Reserve Bank's 1 percent prediction. The economy expanded 1.1 percent in the third quarter. Annual growth was probably 3.2 percent versus 3.5 percent in the third quarter, according to the poll.

Given the central bank is already tipping relatively strong growth, economists don’t expect the GDP numbers to have much impact on the central bank’s assessment of monetary conditions. In its February monetary policy statement the central bank indicated the official cash rate is on hold at a record low 1.75 percent until the middle of 2019. If GDP is weaker than the bank is expecting it will only solidify its on-hold position. Currently, most economists are expecting the central bank to make a move sometime in late 2018.

According to ASB Bank, initial estimates are pointing to another “quarter of robust growth.” It is tipping 0.9 percent quarterly growth, bringing annual growth to 3.4 percent. Construction and the services sector likely drove growth although the net impact of the November Kaikoura earthquake on economic growth is the key uncertainty for the quarter, it said.

New Zealand's economy has been expanding since mid-2013, benefiting from record high migration and tourism, which has pushed up demand. That, coupled with record low interest rates, has also fueled a housing market and construction boom. The latest figures show annual net migration rose to 71,305 in the 12 months ended Jan. 31, eclipsing the record 70,600 set in calendar 2016.

Improving dairy prices have also meant better economic returns for farmers while other primary sectors, such as horticulture, are benefiting from strong demand. Wet weather, however, may have impacted dairy output in the final quarter of last year.

Westpac Banking Corp is tipping quarterly growth of 0.5 percent and annual growth of 3.0 percent. It expects construction to be one of the main contributors to growth and said increased demand from a rising population is expected to show through in some of the services categories. However, “the two notable drags on growth for the quarter come from primary production and manufacturing,” it said.

It noted that damp spring conditions have weighed on milk production and a slow start to the slaughter season weighed on manufacturing. Earlier this week, data showed that manufacturing volumes fell 1.8 percent in the fourth quarter, largely weighed by meat and dairy product manufacturing volumes that fell 5.7 percent.

Bank of New Zealand is also less optimistic about growth in the quarter, in particular after this week's data which "confirmed our expectations that Q4 GDP data next week will be soft," it said. BNZ expects the economy expanded 0.4 percent in the final three months of 2016.

BusinessDesk.co.nz

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