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NZ 4Q GDP growth likely muted

Monday 18th March 2019

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New Zealand's economy likely saw muted growth in the fourth quarter, weighed down by soft services activity. 

Economists are expecting the economy to have expanded 0.6 percent in the fourth quarter and 2.5 percent on the year, according to the median in a Bloomberg poll. The central bank, meanwhile, is tipping a 0.8 percent expansion. 

"There seems to have been a genuine slowdown in growth over late 2018, though it was exacerbated by some temporary disruptions in the energy sector," said Westpac Bank senior economist Michael Gordon. Westpac is tipping 0.3 percent quarterly growth.

The temporary factors include ongoing disruptions to output from the Pohokura gas field, reduced gas supplies and a temporary surge in wholesale electricity prices, he said. 

However, "the softness in business and personal services is not so easily dismissed, given that they make up a greater share of the economy – and a large share of the GDP growth in recent years." 

Gordon said the central bank's March 27 cash rate review "will have to acknowledge that the balance of developments since February has been to the downside."

Looking ahead, Gordon expects things to pick up but other economists - while they don't expect a marked slowdown - are more cautious. 

He did add, however, that while growth slowed by more than Westpac expected over the second half of 2018, "we're still of the view that momentum will pick up over 2019, supported by higher government spending, a strong pipeline of construction work, and a lift in labour incomes." 

ANZ Bank is expecting 0.6 percent quarterly growth and said it expects economic growth to be around 0.6 percent quarter-on-quarter "over the next year or so - a decent step down from the 0.8 percent on average over the past three years.' 

"Economic momentum has softened, though domestic demand is being supported by elevated, but likely easing, net migration inflows and healthy household incomes on the back of the tight labour market, Families Package, low interest rates, and recent retracement in oil prices," said economist Miles Workman.

"In this environment, we think inflationary pressures will lack the oomph required to maintain core inflation close to the RBNZ’s 2 percent target midpoint, with capacity pressures expected to wane," he said. 

He continues to expect the central bank to move to cut rates but said while growth will be weaker than the central bank is forecasting, "we expect it will take some time before growth headwinds make themselves felt in core inflation indicators, which is why we have pencilled in the first OCR cut for November."

ASB Bank is also tipping 0.3 percent quarterly growth, with momentum weighed down by soft services and goods production growth.

"Assuming 4Q indeed registers weak growth, whether or not the RBNZ actually cuts the OCR will depend a lot on how confident it remains that growth will recover over 2019," it says. 


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