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NZ economy probably grew 0.6% in 1Q but more rate cuts still expected

Monday 17th June 2019

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Strong building work and better-than-expected retail sales data likely underpinned New Zealand’s economic growth in the March quarter, but economists are still picking more rate cuts.

Economists polled by Bloomberg predict gross domestic product expanded 0.6 percent in the three months ended March 31 and 2.4 percent on from a year earlier. The Reserve Bank is forecasting quarterly growth of 0.4 percent.

ASB Bank chief economist Nick Tuffley is expecting growth of 0.5 percent as “sunny and relatively calm weather conditions over summer appear to have been beneficial for the construction industry, with the building work put in place survey revealing construction activity boomed over the quarter.”

The volume of New Zealand’s building work put in place increased a seasonally adjusted 6.2 percent in the three months ended March 31 after a 3.4 percent lift in the December quarter, Stats NZ said. It was the strongest growth since the March 2016 quarter when it rose 6.5 percent.

Retail spending volumes were also resilient, lifting a seasonally adjusted 0.7 percent in the March quarter from a 1.7 percent increase in the December quarter. Economists had predicted a lift of 0.6 percent.

Tuffley said, however, while parts of the economy are performing well, “the outlook remains marred by low business confidence and slowing global growth.”

According to Tuffley, the central bank is expecting muted growth in the first half but “confirmation of weak GDP growth along with the softening global economic growth seen over the past few months and continued weakness in NZ business confidence may convince the RBNZ another cut is justified.”

He expects another rate cut in August.

The central bank cut the official cash rate to a record low 1.5 percent in May and its forecasts show a chance for another cut by March next year.

ANZ is tipping growth of 0.4 percent on the quarter, bringing annual growth to 2.2 percent and “even if the 1Q growth surprises on the upside, that doesn’t change the broader theme that economic momentum is waning,” it said.

“The bigger picture is that economic momentum has been slowing for a while now, and we suspect this process has continued into 2019,” it added.

ANZ predicts the central bank will cut the cash rate in November and again in February as forward-looking indicators begin to show that the RBNZ's expectation for a strong pick-up in growth appears unlikely to be met.

Bank of New Zealand economist Craig Ebert expects quarterly growth of 0.6 percent. He pared that back from an earlier of 0.7 percent growth after first quarter manufacturing data “proved a bit patchier than we thought.”

The first quarter manufacturing survey showed a strong rise in the volume of meat and dairy product manufacturing but sales volumes for seven of the 13 industries fell in the March 2018 quarter. The largest decrease was in petroleum and coal products manufacturing, which fell 4 percent.

Ebert said a stronger-than-expected read on the first quarter GDP might provide some “pause for thought about the bank cutting again at its next meeting, namely the June 26 official cash rate review." 

He said the central bank may want to see the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion – due July 2  - as well as the second quarter inflation data – due July 16 - before making a decision.


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