By Bernard Hickey
New Zealand's economy grew at its slowest rate in two years in the March quarter as a slump in oil production, dairy output and business investment more than offset strong tourism and household spending.
The result was much weaker than expected and prompted economists to harden their forecasts for another Official Cash Rate cut on July 23. The New Zealand dollar fell sharply back to five year lows and wholesale interest rates eased four to five basis points. ANZ Chief Economist Cameron Bagrie, who correctly predicted last week's first OCR cut, said he now expected a third OCR cut later in the year.
Statistics New Zealand reported GDP grew just 0.2% in the March quarter after a 2.9% fall in farming, forestry and mining output, which was the largest fall since September 2010.
Economists had expected GDP growth for the quarter of around 0.6%, while the Reserve Bank had also forecast 0.6%. It was the slowest quarterly growth rate in two years.
The 0.2% growth was down from a revised 0.7% growth figure for the December quarter. GDP in the year to the March quarter was up 3.2% from a year ago, but GDP for the quarter was up 2.6% from the same quarter a year ago.
"Oil and gas were big factors in the lower GDP growth this quarter. There was less extraction and exploration, as international prices fell," said national accounts manager Gary Dunnet. Mining production fell 7.8%.
Agricultural output also fell 2.3% in the quarter because of the drought and lower dairy prices, but this was offset by a 2.4% rise in retail trade and accommodation spending, driven in part by strong tourism growth linked to the Chinese New Year and the Cricket World Cup. Tourism spending rose by 2.3% during the quarter.
Household spending rose 0.7% in the quarter, while investment spending fell 1.9% as more construction spending was offset by drops in machinery and equipment investment.
Market and economist reaction
The New Zealand dollar dropped sharply immediately after the release of the data, hitting a fresh five year low of 69.06 USc.
It had risen from overnight lows after the FOMC statement suggested US interest rates would rise later this year, but the weaker than expected GDP data increased expectations for rate cuts in New Zealand.
Westpac Chief Economist Dominick Stephens said the weaker than expected GDP figure "seals the case for a July cut from the RBNZ."
"The big surprise was business investment expenditure, which was very weak. This is an ill tiding for the state of business confidence and growth going forward," Stephens said.
He later said the "shocker" GDP data made a third cut likely in 2015 and fourth cut possible.
"We were struck by the weakness in business investment, which doesn’t suggest a great deal of confidence about the economy’s longer-term growth prospects."
ANZ Senior Economist Mark Smith said the weaker than trend growth helped explain why inflation had receded and cemented ANZ's expectation of a July 23 cut to 3%.
"Local and external headwinds are building and we see a sub-trend pace of growth momentum persisting into mid-2015," Smith said.
"With declining pressure on supply-side capacity, more policy support is needed to return low inflation towards the middle of the inflation target," he said.
ANZ Chief Economist Cameron Bagrie later said via twitter:" ANZ now calling two more OCR cuts before year end so 3 in total. We were forecasting July cut after June cut. Now one more later on year."
ASB Chief Economist Nick Tuffley said he now expected the Reserve Bank to cut again in July, rather than his previous view of September.
"The GDP result will swing more forecasters and market participants into focusing on a July cut, increasingly making that move the path of least regret for the RBNZ," Tuffley said.
Political reaction
Finance Minister Bill English said the economy remained strong.
"We are seeing solid, sustainable economic growth that is giving businesses around the country the confidence to invest another dollar and hire another person," he said.
"The lower dairy output was in line with Treasury's forecasts, which see the economy continuing to grow at around 2.8 per cent on average over the next four years. This results highlights that New Zealand is closely tied to international markets, and risks are ever-present."
Labour Finance Spokesman Grant Robertson said the growth was less than half that forecast by the Treasury and signalled rough weather ahead.
“John Key and Bill English made a losing bet that dairy prices would remain strong and they wouldn’t have to invest in other areas of the economy. They got it wrong, and they’ve got no Plan B," Robertson said.
“The Government squandered the opportunities they had in the good times to invest in diversifying the economy, boost R&D, and revitalise the regions. Instead they sat on their hands," he said.
(Updated with more detail, market reaction, political reaction)
Economic growth
Select chart tabs
85 Comments
The economy is like one of those ageing rockstars that just fell off the stage... http://goo.gl/e6JfKb
"The big surprise was business investment expenditure, which was very weak" You're kidding, Dominick!
No one....No one...is going to invest in their company when they can borrow cheap funds and buy back their own shares to make money instead. Who'd be crazy enough to invest in anything in New Zealand ( or elsewhere!) other than assets backed by ever cheaper debt...??!!
Lower interest rates, Dominick, IS NOT THE ANSWER !!
The share price goes up, Doug. That's all that matters...especially to those whose remuneration is based on share price hurdles - the Directors and Senior Management exclusively. ( MRP is a classic case in point)
Selling product? Doesn't matter. Chewing up capital? Doesn't matter. That's why NZ has this set of numbers. We have become a zombie economy based entirely on the whims of ever cheaper debt and how we misallocate it. That the only answer is "Lower Interest Rates!" tells us where we are going...and it's not to anywhere good....
Gravity....is called Higher Interest Rates, Doug. And in our economic panic to save the indebted, the only call to help is for lower rates. What is, and always was, needed are HIGHER RATES. Not until the madness of QE and all of it's hanger-onerer clones is killed off, can Gravity take hold. And Lord help us all when it does.
interest rates come after the gravity. As goods are hard to get inflation hits big time. Gravity( correction in shares) is caused by distrust(distortion) in equity. This should have happened after the GFC but the fed stepped in and now we are all in the poo. We are forced into this low interest rate cycle by the yanks, euro's, japs and the Chinese. If NZ raised its rate the dollar would go through the roof and our economy, what is left of it would pop like a balloon. We would be worse off than the greeks.
Try this as an opener.
The data are relentless: house prices keep rising, mortgage burdens keep growing, disbelief keeps mounting.
“To say that it’s not a threat, not a potential problem, that would be totally wrong,” Michael Wolf, the chief executive officer of Swedbank AB said in a June 11 interview at his headquarters outside Stockholm.
Finance Minister Magdalena Andersson calls the development “worrying” and has assured Swedes the government is planning steps to tackle the imbalance. Those will include proposals to boost the housing supply. Swedish apartment prices jumped an annual 13 percent in May. In Stockholm, where household debts average 482 percent of disposable incomes, apartment prices in some areas soared more than 25 percent over the past 12 months. Read more
I increasingly believe however that there is growing mis-management and greed effect going on in the financial sector.
So prices are rising fast due to a perceived supply shortage? lets say yes. Is a low/lowering interest rate to blame? No i don't believe so. is it making the situation a bit worse? I suppose that is quite possible. Just for a moment consider however that the rises in Auckland are so significant ie 10%+ that it is hard to imagine a cut of 0.25% makes much difference on ppl chasing significant un-earned income.
Just for a moment consider however that the rises in Auckland are so significant ie 10%+ that it is hard to imagine a cut of 0.25% makes much difference on ppl chasing significant un-earned income.
A 25bp short end interest rate cut would cause me to load up the boat in the RP financed sovereign coupon bond market. Difficult to do in NZ due to liquidity issues so houses act as a proxy for the local leveraged gambler.
It's not just a perceived supply shortage, but a real one due to high global migration to countries with stable social systems and relatively good economic prospects. The problem is a case of a combination of massive migratory flows throughout the world and poor government housing and development policy. The modern regime low interest rate regime only allows societies in country's similar to ours to accommodate these problems without tremendous economic dislocation and social turmoil. A high mortgage or rents are better than not having access to housing at all.
". After Oslo, Stockholm is Europe’s fastest growing capital—its population is expected to expand by 50% by 2030—yet cranes are scarce. The 30,000 new arrivals each year have increased competition for housing, and record-low interest rates have allowed Stockholmers to afford bigger mortgages. As a result, Swedish house prices have more than trebled since 1996 and household debt has reached 174% of after-tax income. There is talk, naturally, of a bubble."
http://www.economist.com/news/finance-and-economics/21614165-house-pric…
"These areas soon became isolated from the mainstream of Swedish society. The new communities were designed to make open space accessible to their residents (ordinarily a desirable goal), but this by design disconnected from nearby older (and lower-density) subdivisions. Planners and architects for the Million Programme apparently never anticipated that their creations would become segregated to such an extent that a member of Parliament and government minister would call for some of them to be razed. Sweden’s Minister of Integration, Nyamko Sabuni, did just that in a 2009 op-ed column, when she charged that they led to “exclusion” of their residents and since many of them are badly in need of thorough renovation, some should be torn down instead.5 Indeed some Million Programme complexes outside of Stockholm have met their demise with the use of a wrecking ball.6"
http://www.newgeography.com/content/003811-a-million-new-housing-units-…
I agree with Nasim Taleb on fragility. The more you try to eliminate the downturns, the bigger your problems we be when on happens. Extend and pretend is building up massive problems for the future. Recessions are a natural part of the cycle. By using monetary policies to stave these off will lead to a bigger event which will cause more pain the regular smaller setbacks.
And you wondered why the PM of Parnell was selling NZ with unfettered immigration and called housing a supply issue? It probably never made sense to even the most hardened national voter (of which I normally would include myself) but the hemorrhaging revealed in the countries' accounts today would have been seen in the tea leaves by the government a while ago and foreign students, tourism (read prospective immigrants, house buyers) and housing would be the few growth pillars remaining for JK to successfully wind up his sabbatical in NZ before heading off to Hawaii and leaving "poor" ol Crusher to front up in opposition to the scorn of NZ.
If the housing Ponzi pops watch out below if you have forex costs. Mind you a collapsing NZ$ will be the only thing that can get the dairy industry and therefore the rest of NZ back on an even keel. How it leaves foreign buyers who bought at 0.88 or the equivalent I don't think is of a major concern to a lot of NZers because guess what - this time is no different to all the other boom, busts NZ has had. Everything reverts to the mean (although sometimes history has shown we often overshoot to the downside - remember 0.39c in late 2000)
The 0.88 still won't be a problem if they don't have to service that as debt, and if they aren't using the full price as security. That's one of the problems, foreign money frequently comes because it's secure, the only reason to take loans on it is to launder incoming cashflow.
my chinese workmate told me she brought her house and all the way she delt with chinese from lawyer to mortgage broker to realestate agent, to bank and even the money she brought in came in through a chinese finance in auckland city.
and she said no problem bringing in funds she can call china and money is in her NZ bank account that night.
the scary part about that if its so easy to get it in how easy will it be to get it out
i told about the hoops i had to go through to open a aussie bank account and im a kiwi and she said thats why they come here everything is easy
GDP growth flat despite rebuild in Christchurch, a growing population (at its quickest pace), historically lowest interest rates and already overpriced assets.
Am I the only one who thinks that NZ won't survive the next financial crisis and land/house prices will collapse leaving many leveraged families and businesses broke?
I think there wll be "survival" although what form it takes... ??
However I think you've done an excellent job of listing the warning parameters. Expertise needs to be put in to work up what vector(s) create that scenairo, and build a reverse plan...which probably will involving picking a point which 99% of folk can agree of as being favourable conditions.
ANZ Chief Economist Cameron Bagrie later said via twitter:" ANZ now calling two more OCR cuts before year end so 3 in total. We were forecasting July cut after June cut. Now one more later on year."
Reminds me of that movie Dumb and Dumber - why would any business commit to expansion if the call is for lower interest rates as far as any dare forecast - once a committed borrower squares up to the next competitor with lower interest costs it's all over.
The situation demands the extend and pretend strategy to be dumped - hoping to ratchet property values higher in the vain hope interest costs can be capitalised while income to service debt on higher property values collapses is insane. The RBNZ, the supposed bank stability junkie, needs to assert some authority if the government can't or won't.
The Q is just who is ideologically blinkered? A business commits to expansion when there is sufficient demand and potential profit to justify the expansion, not what the interest rates are. Everything I have been reading by non-austrians says businesses are not investing because there is no demand, not quite sure what Austrians think as its seems muddled, confused and steeped in wonky libertarian/ideology by comparison.
The situation does not demand the extend and pretend is dumped. In 2008 the situation should have been fixed by taking over major US (and probably EU) banks who were clearly greedy, incompetent and un-repentant. They should have been cleaned out and bank directors, CEOs and shareholders made to take the losses they deserved to take, what goes on in NZ is simply to small to matter.
The present Govn wont because they have the same greed and outlook as the bankers, well we voted for them so we have ourselves to blame when it implodes.
In 2008 the situation should have been fixed by taking over major US (and probably EU) banks who were clearly greedy, incompetent and un-repentant. They should have been cleaned out and bank directors, CEOs and shareholders made to take the losses they deserved to take, what goes on in NZ is simply to small to matter.
Shoulda coulda woulda
With this and potential further currency falls the Govt foreign debt will balloon.
The NZDMO raises all it's public funding in NZD. Furthermore, our banks finance our persistent current/account deficit with cross currency swapped foreign borrowing - hence it is hedged - the game would have been over many years ago if this was not the case. Pages 21/62 to 23/62 offer some background details.
Bottom line, we are borrowing credit wrapped NZD issued by supranationals such as the World Bank and it's subsidiaries who should know better than to further indebt us with cheap credit beyond that which local depositors can extend.
yes, I have been thinking that for quite some time
As you have previously pointed out, it will take a global event to cool things down. While many assume that should things in NZ deteriorate, overseas investors and hot-money will take fright and flee, the question is,
Where could they go?
If it was "cool" Id be all for it, what I fear is more like an Ice age on steroids. So I see a 60~75% drop not a 10% one.
When something goes wrong, for "legit" ppl who have borrowed in USA and lent into NZ they will run back to the USA. For the "speculators" in our housing market however yes their "business model" is far more complex and yes either they dont want to go or have indeed no where to run to.
I actually can't see it happening. Mainstream commentators have been predicting another economic crisis for awhile now, and I've come to recognize a rule of thumb, that if mainstream observors make a forecast, the opposite outcome will eventuate.
Instead if you think Auckland house prices are over-inflated, because of a flood of foreign buyers scooping up all of our assets, prepare for a deluge of Biblical proportions.
"The latest initiative, expected to be announced in the next few weeks by the State Council, China’s cabinet, will allow individual Chinese and businesses to directly purchase stocks, bonds and real estate in foreign markets, removing limits on such transactions, according to Chinese officials with knowledge of the matter. Though initially limited to people and businesses in certain designated free-trade zones, the proposal can be scaled up over time, the officials said."
http://www.wsj.com/articles/china-to-ease-limits-on-overseas-investment…
All non-government debt is private.
RE: foreign investors, they are a factor of importance if their sold up departure numbers are enough to cause a residential property price crash in Auckland. Such an outcome could jeopardise the stability of the whole bank mortgage asset market.
no, the vested interest push for a lot of legislation and certification which makes the small owner and small operator unable to cover all the bases effectively, and they have to sell out to the vested interests.
And the only way to stop that is for _people_ to stand up and be aware of it happening, and be prepare to push back the government rulings. It's happening to Trades and farmers. It happened to Real Estate Agents - how many are in town now compared with 10 -or 15 years ago. Now they have to be under the umbrella of a bigger corporate or struggle.
Time for a Song, BH.
Ry Cooder - Taxes on the Farmer Feeds Us All: https://www.youtube.com/watch?v=yLNW4CSzrw4
"It would put them to the test
if the farmer takes a rest..."
looks like some leaks in the dam only a matter of time before it becomes a flood
http://www.cnbc.com/id/102768313
http://www.theguardian.com/money/2015/apr/30/house-prices-fall-in-march…
http://www.heraldscotland.com/news/home-news/house-prices-fall-after-tr…
All this negative emotions are understandable.
But, let's be rational about slow econ growth etc.
NZ is like a small boat (full of untapped natural resources) and thus is able to turn its directions swiftly in this rough sea.
The progress in AIIB is on track to kick start the grand plan of 'one road one belt', which will be the savior of this coming econ crisis. Even the US and Japan, not currently signing up with AIIB, will buy into it.
Cheer up guys.
Recent rapid immigration is going to turn out to be a drag on our economy as immigrant workers force down wages (stole our jobs!) and we need to spend billions supporting and reeducating these migrant workers.
National policy has not worked and the brown stuff is about to hit the fan.
Just wait until the inevitable Auckland property crash of 2016 and the end of the rebuild in ChCh. Dairy farmers will look like the lucky ones soon...
I so agree. Been looking at residential properties with one son and his family - first home buyers, Wellington/Hutt.
Can't get over the number of properties which had been purchased around the 2007 height of the market period which are still hopeful to get those same prices. Many rented them out in between - trying to wait out the downturn, I assume.
I can only imagine what will happen if they don't sell this time around and what length of wait they might have following the next leg down.
This is the type of sentiment I suppose a lot of Wellingtonians might have presently;
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…
I agree that the national policy of paying for all of those NZders on all of the living subsidies have caused Govt debt to balloon.
At least the Immigrants get out there and work. They want too, they understand what it means to do a fair days work.
Remove minimum wage
get rid of WINZ
Get rid of WFF
Get rid of the housing supplement
And then you might see this country work.
What pray tell makes you think that new immigrants don't end up clients of our social welfare system as well;
http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11453261
sigh ... the head of that syndicate has been in New Zealand for 22 years, turned over $20 million himself, $60 million for the group, yet is no stranger to the wonderful welfare benefits the place provides
Wonder how much tax he has paid ?, what contribution has he made to the country that welcomed him with open arms, how much has he donated to charities? Now 15 years free residence and meals at Her Majesty's pleasure
Do you think he has been a net-plus or a net-negative in his time here?
He should have his citizenship revoked be deported
I guess that is a small detail we will never know
Tax - been a criminal in that regard as well :-)
https://www.ird.govt.nz/aboutir/media-centre/media-releases/2009/media-…
Sadness - What is the New Zealand Way?
In an article here about a week ago there was a discussion about culture, the concept of a fair-go, harmony amongst our fellow citizens, as we go about enjoying the bounty our fair land bestows upon us, a land of milk-and-honey, sharing and respect for all and everything we enjoy as temporary custodians
The short time I have left here in Australia before I return to my roots I have time to reflect on what I have enjoyed here. The news is full of the despair of the mass migrations of people who struggle to fit in and assimilate, the 50,000 refugees pa that were arriving, boat-people, turning back the boats, the radicalisation of their young, those who abuse the benefits they came here for.
Among the incumbents who were born here, 2nd or 3rd generation, or those new arrivals who have embraced the "australian way", the "fair-go" the way-of-life there is fortunately enough of them to stand up and object to anything that is un-australian. From the news you get the sense that the desire for the australian way is something still to be treasured and nurtured and protected. People speak in those terms. There is an identifiable sense of Australian culture. Some politicians are openly saying either get on-board and join in, or leave.
That view takes the form of vociferously objecting to those who come here but who are unwilling to play by australian rules and become australian. They are held up to be un-australian. It's in the news day after day after day, day and night.
The government is now introducing legislation to strip australian citizenship from those people who have dual-citizenship who have trangressed. They are also considering stripping citizenship from those born here but have the right to apply for citizenship of another country and deporting them.
The place is hardening. People are beginning to turn on others. I dont see or hear any of this happening in New Zealand
My time here has influenced me, turning me into an anti-immigration red-neck
Kate: you and Stephen Hulme participated in one of these conversations
I have foot-walked all over these lands and despaired at the changes wrought by others hands
http://www.interest.co.nz/rural-news/67956/water-storage-more-farming-t…
http://www.interest.co.nz/news/63649/90-seconds-9-am-cyprus-says-no-us-…
yep it's sad Iconoclast. Actually there is a very strong Kiwi culture, well founded in friendness and Justice. But sssssh - don't say it. Any aspect of Kiwiness that pops its head up has to be chopped down. There are any number of units, mainly goverment funded and often Maori who are there to cut you off at the knees.
Ha, tell that to uber qualified health care specialists who are blocked from becoming registered in NZ by their fearful, greedy NZ "colleagues" on govt-appointed councils with no accountability or oversight and to which there is absolutely no comeback. In that context, the Kiwi fair-go is indeed a myth. Ask me how I know.
several NZ healthcare specialists I know have left NZ because the system wasn't hiring. And my family and I have personally been on the wrong end of several instances "care" from imported "professionals", who in many cases didn't even know the side effects of the pills they were pushing.
While I do agree that the old-boys certainly have control over that network, and it's pricing cartel; they certainly seem to give registration to some questionable types. And as pointed out, many of those already in positions aren't from NZ backgrounds, or from backgrounds where who and where you studied seems more important than the effectiveness in their job.
Case in point: Where - Cornell and Harvard (personally mentored by the 1990 Nobel Laurate in Medicine), 18 years solo private practice in Connecticut then Assistant Professor at Vanderbilt then Senior Lecturer at Otago under temporary registration. Permanent registration denied via credentials as Harvard transcript did not list CPR training (!) and "not sure Harvard training is equivalent to that at Otago" (!!!). Subsequent registration in Pennsylvania (spotless clinical practice record verified by the USA national data base) teaching at the Univ of Maryland, invited lecturing at university specialty training programs in the USA, 16 clinical papers in peer-reviewed journals, invited addresses to clinicians at specialty annual meetings in the USA and France, etc. Closed shop here.
yep ... that's our insane bureaucrats and government for you. We don't want good people, we want the people we've been told go on our lists. Our wonderous education system has produced working drones - which is crazy because we have awesome _individuals_ but when they get in the system they just get forced to behave mindlessly for their certified masters. Yet normally on a personal level they're ac tually friendly and creative... yet ...no CPR training... but that's like the "absolute demand for engineers" (something which India has too many of because many of them get brought up believing they should be engineers, like US kids grow up being taught to be doctors, lawyers or movie stars)...
Why didn't they just put him on a CPR training course (or appraisal).
I was reading about how cops in Auckland are giving Maori unlicensed drivers orders to sit their licenses when caught...turns out that was media stirring..anyone who looks poor gets the choice of license or sit within a month.... but you no how badly the medical bureaucracy handle that when *I'm* saying even the cops can do it better....
...yet we bring in poorly and somewhat dubiously trained nurses and dump them into the local hospitals and rest homes. In the meantime countless NZ trained nursing graduates can't find work. I can't understand it....my guess is the foreigners are compliant, will not question, challenge or demand anything from the employer.
Gee - interesting to look back on past comments. Yes, some days I despair more than others for my homeland. But then I left it before Reagan was president - and I can only think that what changed it (and the world) was the neo-liberal attitude/prescription. And they exported it - in spades.
But they have also produced some excellent theorists/thinkers - here's one of my contemporary heroes who did his PhD in my hometown (Chicago);
The Good City: In defence of utopian thinking
http://www1.appstate.edu/~crepeaur/5420/friedmann%20in%20defense%20of%2…
As usual the media in the US changes faster than anything else, just to put a "fresh fashion" to keep people from getting blaise. I think you'll fing most of the people are pretty much just the same (for better or worse). Most of the Interner contact I have with US people is very much at odds with the government/media role....although there has been some good growth in US people noticing the police vs blacks issue, and police "at war" with citizens. word is starting to get around and cellphone cameras are making a dent in the worst places. Hope yet for a melting pot...
you also have to remove the barriers on employers and income, so that their are funds available to pay for all that work.
That was what I was trying to say to Anarkist the other day. IF we have too much paid work available, then those cuts are needed; but for many of us who are looking for employment no-one is hiring.
I don't think I got the part time call center job I applied for...probably can't type fast enough :)
Immigration is largely looked at how it affects housing. What about also the additional drag rolling down the hill from the stress on traffic congestion, education, health, policing, law and order that all come from an increased population, largely in Auckland only.
its ok government has sweetened the deal for islanders to go home to retire.
will work well for those from Auckland be able to sell and retire in comfort.
call me a cynic but this looks like how can we get some old people out of auckland
http://www.stuff.co.nz/national/politics/69521629/pension-law-change-fo…
I could one day claim the UK pension, yet live in NZ and so? How many islanders are actually middle class / well off? bet not that many. Cynic, well yes. There is also a less burden in the NZ health system aspect from these OAPs who I believe have a disproportionate impact on the system due to lifestyle choices. No WINZ payments aspect as I'd bet many wont have a private pension. On top of that as semi/un-skilled labour they will face far more likelihood of un-employment once into the 50s? if not here NZ wont have to meet it? also less burden on NZ housing?
What a deal is all I can say.
they are still covered by our health system so for anything serious get flown to NZ to be treated here.
for the rest they would most likely be better off than trying to survive in Auckland on a pension.
a lot do own houses in south Auckland and prices have hit 500k so good on them if they take it up
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.