By Bernard Hickey
Statistics NZ has reported Gross Domestic Product rose 0.3% in the March quarter, which was less than the consensus economist forecast for growth of around 0.5%.
Statistics NZ said the drought in the North Island had offset much of the boost to the economy from the rebuild in Christchurch.
The New Zealand dollar fell as low as 78.45 USc immediately after the figure came out, having earlier fallen more than 1 USc after US Federal Reserve Chairman Ben Bernanke indicated the world's largest central bank could end money printing as soon as the middle of 2014. This is near a one year low against the US dollar, although the Kiwi dollar has risen to near a five year high against the Australian dollar.
Statistics NZ said the 2013 drought had been a factor reducing agricultural output by 4.7%, although this was partly offset by a 3% rise in food manufacturing as stock slaughtering was bought forward.
"The impact of the drought showed up as expected, with lower milk production and higher slaughter numbers for the first three months of 2013," Statistics NZ GDP project manager Jason Attewell said.
"We expect the drought will impact on the economy for several quarters, as lower herd numbers and conception rates will affect future production," he said.
The 0.3% growth in the March quarter followed growth of 1.5% in the December quarter, which was better than expected, due partly to farmers bringing forward the slaughter of stock because of feed shortages early in the summer.
Business services output rose 3.9%, driven by architectural and engineering services in Canterbury and Auckland. The figure was also boosted by work associated with the census. Construction output rose 5.5%.
Information media and telecommunications output fell 3.1% because of falling use of landlines and mobiles for calling between December and March.
Economic activity for the year ended March 2013 was up 2.5%, including upward revisions for the quarters from March quarter of 2012 to the September quarter, which meant the annual growth rate was in line with economists' forecasts.
GDP on an expenditure basis also rose 0.3% in the March quarter. Household expenditure, which measures the volume of goods and services consumed by households, rose 0.4%.
"This has not fallen since the March 2009 quarter, and has grown 10.1% over that time. Investment in fixed assets rose 0.3%, with a rise in residential building partly offset by a fall in plant and machinery investment," Statistics NZ said.
Economist reaction
Westpac's economists said the March quarter weakness was 'payback' from larger than expected growth in the December quarter.
"This was a genuine downside surprise relative to expectations, and therefore leans in the direction of later/fewer interest rate hikes and a lower NZD," Westpac's economists said.
"However, the surprise was relatively small and does not alter the fundamental characteristics of the economy. We would still describe the NZ economy as being on a broadly accelerating trajectory, stimulated by the post-earthquake rebuild in Canterbury and rising house prices. However, this acceleration has been uneven across regions, and has been interrupted by the summer drought," the said.
Westpac forecast another quarter of 0.3% GDP growth in the June quarter because of the ongoing effects of the drought.
ANZ's economists said growth in the last few years had been hard work. "Even with the solid growth of the past six months, GDP per capita is still 1.3 percent below its 2007 peak," they said.
"The Canterbury rebuild effort underwrites the economic outlook, but our concern is about the sustainability of it all in terms of New Zealand’s external imbalances. The “wrong” mix of monetary conditions is encouraging more consumption, at a time when New Zealand needs to be paying down debt from a structural viewpoint," they said.
BNZ economist Craig Ebert said he expected the pace of economic growth to pick up over the second half of this year and run above trend through 2014.
"The market would appear to be accepting this view more and more as well. It now fully prices a 25 basis point OCR hike for March and another by around June," Ebert said.
"While we have stuck to our March-hike view we still formally have the OCR 75bps higher by June next year. Last week’s Monetary Policy Statement, in contrast, signaled no hikes for the coming 12 months," he said.
"We believe the risks of this approach are more and more outweighing any perceived benefits (with even the “high NZ dollar” excuse wearing thin). It’s already been partly responsible for inflaming house price inflation. In relation to this, even Fed Chairman Ben Bernanke, in his comments overnight, inferred the dangers of continuing with super-easy policy when it’s not fully justified any more. Good on him. It’s easy (and, dare we say it, popular) to run easy monetary policy. The real test is how well a central bank exits from this. Greenspan did a bad job of this over 2003-07. Bernanke at least recognizes the risks. There is hope for us yet."
TD Securities' Alvin Pontoh said the lower than expected figure was unlikely to shape expectations about the Official Cash Rate.
"The pickup in credit growth, rising household debt/income levels and accelerating house prices are all threatening financial stability, and we remain unconvinced that macroprudential tools are a substitute for higher cash rates," Pontoh said.
"We still expect the first OCR hike to be in December, but are flexible about pushing that into 2014 given Governor Wheeler’s more dovish/less hawkish tone in last week’s post-OCR review communique," he said.
Political reaction
Associate Finance Minister Jonathan Coleman said the figures showed New Zealand was on the right track with more jobs, rising wages and a return to budget surplus in 2014/15.
"Indications are that momentum will continue this year driven by rising consumer and business confidence, and a lift in construction. The increase in household spending signals that people are feeling more secure and optimistic," Coleman said, adding the economy was on track for growth of 2.5-3% in coming years.
Economic growth
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(Updated with more detail, currency market reaction, economist reaction, political reaction, charts)
9 Comments
In a somewhat perverse way this is actually good news , it will hopefully weaken the Kiwi $ against the Aus$ which reached over 85 this morning , and is heading for 90 .
Our strong exchange rate to the Aussie is where real damage is being done to ordinary Kiwi exporters.
Boatman - don't be mistaken, the NZD is down, and going lower, not because of a GDP number, but on the back of the Fed's overnight statement that its tapering itsQE program, a hugely bigger issue for the global economy, and NZ's. than one GDP number.
Less QE means a higher USD, lower NZD, higher US low rates, and higher NZ long rates, all of which have been happening over the past few weeks, and got a big boost today when the Fed confirmed its their intention.
Interestingly, GDPE - Mar13 Qtr data revealed an annual growth rate of 2.6844% versus a revised 2.4243% (2.3303% orig.) GDPE - Dec12 Qtr result.
This trend outcome is very much in line with Treasury forecasts that I have highlighted previously. But not in absolute terms.
Further investigation of the document you referenced on page 136 of 176, or Section B.3 | 5: reveals Treasury forecasts 3.9% price inflation as the major component of the 6.4% GDPE growth forecast for the March year ending 2014. Read more
I have attached Stats NZ releases for GDPE and the deflator etc for the last three Qrts. here, here & here
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