Stats NZ says NZ GDP rose 1.0% in September quarter from June quarter, slightly above economists' forecasts

By Bernard Hickey

Statistics New Zealand reported GDP rose 1.0% in the September quarter from the June quarter, thanks largely to 5.8% growth in primary sector output.

Economists had expected growth of around 0.8% for the quarter, while the Reserve Bank had forecast 0.9% growth.

"This is some of the strongest growth in primary industries for 15 years," Statistics NZ national accounts manager Gary Dunnet said.

"Milk production had a good start to the season, while oil exploration, and oil and gas extraction also grew," Dunnet said.

Manufacturing grew 2.0%, while the services sector was mixed.

Annual average GDP growth for the year was 2.9%, which was below some economists forecasts. Statistics New Zealand revised previous GDP growth lower, with average growth through the upswing revised down to around 3% from 3.5% previously. GDP in the quarter was up 3.2% from the same quarter a year ago.

"This may help to explain why NZ has been experiencing mysteriously low inflation in recent years. GDP growth has not been all that strong in recent years," Westpac's economists said.

The New Zealand dollar initially rose slightly, but then fell back as news of the revisions came through.

Household spending rose 1.5%, driven by a 4.0% rise in durables – including used motor vehicles and furniture.

"This is the highest quarterly increase in durables since before the global financial crisis. Investment also increased (3.5 percent), mainly due to increased spending on machinery and transport equipment," Statistics NZ said.

Construction activity fell 1.2% for the quarter after two quarters of growth. "The latest fall in construction was driven by a decrease in heavy and civil engineering," Statistics NZ said.

Retail trade and accomodation rose 1.7% in the quarter, while information media and telecommunications rose 3.5% for the quarter, which was its fastest growth rate since September 2012.

Transport, postal and warehousing fell 2.6% in the quarter because of lower activity in transport support services.

Economist comment

ASB Senior Economist Jane Turner said the bigger than expected headline growth of 1.0% was boosted by some volatile components such as telecommunications and mining, and was over-shadowed by revisions.

"This could potentially provide some explanation of why non-tradable inflation has been softer than expected.  If this is the case, the RBNZ may have revisit its assumption that the NZ economy can grow at a stronger rate of growth without generating a lift in inflation pressures," Turner said, although she noted ASB remained of the view that the next hike in the Official Cash Rate would not be until December 2015 and the peak would be 4% in March 2016.

Growth was becoming more broad-bassed and supported by household spending, construction and services, Turner said.

BNZ Economist Craig Ebert said the market was not that excited by the better than expected headline figure because the detail was noisy and because of the revisions.

"While it’s difficult to know what the Bank will make of it all, what we can reasonably say is that there was nothing in the data to have Governor Wheeler rushing to tighten," Ebert said.

ANZ Economists Mark Smith and Sharon Zollner said the revisions went some way to explain the recent mystery of low inflation.

"Our new estimates suggest slightly less pressure on resource capacity than previously thought, despite the positive Q3 GDP surprise," they said, adding the economy was in "good nick" headed into 2015.

"Our expectation is that low inflation will keep the OCR parked at 3.5% until the end of next year."

Political comment

Finance Minister Bill English said the figures showed the Government was taking the economy in the right direction.

"We are in the unusual but encouraging situation where we have solid economic growth, more employment and higher wages, but few pressures on inflation," English said.

"This suggests New Zealand's economic growth potential before inflation sets in - essentially the speed limit of the economy - is higher than expected previously," he said.

(Updated with more detail, economist reaction)