Thursday 19th September 2019
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New Zealand’s economy grew more than expected in the second quarter, with stronger services output offsetting a slide in manufacturing and construction but economists say it won't deter the central bank from cutting rates further.
Gross domestic product expanded 0.5 percent in the three months ended June, following a 0.6 percent rise in the March quarter. It was up 2.1 percent from the same quarter a year earlier, Stats NZ said. Annual growth has slowed to a six-year low.
The quarterly outcome was as the Reserve Bank had forecast, although economists polled by Bloomberg had predicted GDP expanded a quarterly 0.4 percent and was 2 percent higher than a year earlier.
Kiwibank chief economist Jarrod Kerr says the unexpectedly strong outcome doesn't change the outlook. "We know where we’ve been, it’s where we’re going that counts. And we all know the risks are not positive," he said.
"A continued lack of confidence from firms and households, combined with heightened uncertainty offshore, suggests forecasts of strengthening growth may struggle to materialise. We expect that the RBNZ will be forced to act by further cutting the official cash rate to 0.75 percent in November," added Kerr.
The central bank cut the OCR by 50 basis points to 1 percent in August and left the door open for further rate cuts. Economists, however, are expecting rates to stay on hold at next week's review, when the central bank will only publish a one-page statement with its decision. Rate moves tend to happen when it publishes the full monetary policy statement as it can also provide its forecasts. The next statement is due Nov. 13.
ASB Bank economist Mike Jones said the June quarter marked the fourth consecutive quarter that real GDP growth printed below its circa 0.7 percent quarter-on-quarter potential rate "confirming a protracted slowdown in economic growth has occurred."
He is also expecting another rate cut in November "with the risk the official cash rate moves lower over 2020."
ANZ Bank economist Miles Workman also said that "despite the slightly stronger print than expected, today’s data continue to reflect an economy that has continued to slowly lose steam over the first half of 2019. And with forward-looking indicators continuing to slip, this process looks set to continue for a while yet."
ANZ is expecting a 25 basis point rate cut in November, February and May, taking the OCR to just 0.25 percent.
Meanwhile, the size of New Zealand’s economy in current prices reached $300 billion for the first time, Stats NZ said.
“It took about 14 years for the economy to go from $100 billion to $200 billion and nine years to reach $300 billion," said national senior accounts manager Gary Dunnet.
The New Zealand dollar rose as high as 63.31 US cents from 63.13 cents immediately before the announcement. It was recently trading at 63.03 US cents.
The services industries output grew 0.7 percent in the quarter, after expanding 0.3 percent in the March period.
The goods-producing industries, which represent around 19 percent of GDP, shrank 0.2 percent after expanding 1.9 percent in the prior quarter. Manufacturing activity fell 0.8 percent, weighed down by a 2.8 percent contraction in food, beverage and tobacco manufacturing.
Construction activity fell 0.8 percent due to a decline in non-residential construction, Stats NZ said. Construction activity had expanded 3.4 percent in the March quarter.
The primary industries, which represent 7 percent of GDP, rose 0.7 percent after falling 0.5 percent in the prior quarter.
Agriculture activity grew 1.1 percent, driven by recoveries for sheep and beef cattle and dairy farming. Mining activity shrank 4.4 percent on reduced exploration activity. Forestry and logging activity expanded 1.9 percent while fishing activity lifted 1.2 percent.
On an expenditure basis, GDP expanded 0.7 percent on the quarter and 2.6 percent on the year.
Within the expenditure measure, household spending was up 0.5 percent in the June quarter while investment in fixed assets fell 1 percent. Exports of goods and services fell 1.8 percent while imports of goods and services fell 0.3 percent.
On a per capita basis, GDP expanded 0.2 percent in the June quarter following a 0.1 percent lift in March.
Stats NZ said the real purchasing power of New Zealanders rose in the June quarter and real gross national disposable income – or RGNDI – was up 0.8 percent.
With a population increase of 0.4 percent, the RGNDI per capita was up 0.5 percent on the quarter, it said.
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