GDP grows only 0.4% in December quarter versus market pick of 0.7% and RBNZ forecast of 1.0%; Stats NZ says only half of 16 industries recorded growth; September figures revised down sharply

Gross domestic product (GDP) rose only 0.4% in the December 2016 quarter, which compared with an average market expectation of 0.7% and a Reserve Bank forecast of as much as 1.0%.

Additionally, Stats NZ significantly revised the previously released September quarter figures down to just 0.8% growth from the earlier announced 1.1%.

Of the major market forecasters BNZ economists had pretty much stood alone in forecasting a GDP rise of as little as 0.4 following an increase of 0.8 percent (revised) in the September 2016 quarter, Stats NZ said today.

The Kiwi dollar having risen sharply on the interest rate rise by the US Federal Reserve,slumped about US0.4c to US70c.

Statistics NZ's national accounts senior manager Gary Dunnet said growth in service industries was partly offset by weaker activity in primary industries also flowing through into manufacturing.

“At an industry level, growth was a mixed bag, with only half of our 16 industries rising.”

Finance Minister Steven Joyce said the economy "is successfully navigating a still challenging international environment, and growing the prosperity of New Zealanders”.

“While growth has softened in this latest quarter, the continuing trend is consistent ongoing growth ahead of most other developed countries."

Labour Party Finance spokesperson Grant Robertson said National’s "failure" to manage the economy for the long run had been exposed by the latest GDP figures, showing the rate of growth halving in one quarter.

“...Real GDP per capita fell 0.2 per cent from the September quarter showing that Kiwis are working harder and harder for less. A slump in productivity of this nature exposes National’s failure to build a resilient and adaptable economy.

“What this shows is that population growth, rather than improving productivity, is propping up the New Zealand economy." 

Kiwibank economists said for the RBNZ the December quarter GDP data "will come as a low blow" heading into next week's official interest rate review.

"At the February [Monetary Policy Statement], the [RBNZ] had forecast a 1.0% rise in December, which is 0.6%pts above the actual outturn - data revisions aside.

"The RBNZ had also forecast that growth would reach 4% yoy by the middle of 2017, and based on today's figures this now looks highly unlikely. Following today's data we remain comfortable with our view that there is no rush to raise the OCR anytime soon." 

Kaikoura earthquake's negative impact

ASB chief economist Nick Tuffley said the Kaikoura earthquake "appears to have had a negative impact overall".

He said the latest figure, combined with the revised down figures for September, meant a "more moderate growth profile over the past year than previously believed". 

"The areas of weaker growth in Q4 are generally the more volatile components and we believe the underlying trend remains robust, albeit slightly softer than previously thought." 

Tuffley said given the recent lifts in inflation, the RBNZ may be less sensitive to the weaker outcome than otherwise the case. 

"The slightly weaker growth profile does reinforce that the inflation outlook remains fragile and requires ongoing monetary stimulus.  We continue to expect the RBNZ to leave the OCR on hold at 1.75% until late-2018, with the major source of downside risk being uncertainty offshore."

Transport key source of weakness

Tuffley said the key source of weakness was the transport industry which, in the absence of any reliable indicators, was a major source of uncertainty ahead of the release.

"Transport was a sector quite disrupted by the Kaikoura earthquake, given the road, rail and port damage that occurred.  While factors which contribute to transport were generally positive in Q4, the small fall of 0.7% does follow the previous quarter's 3.7% increase.  Overall, increased domestic demand for consumer goods, increased tourism and robust export demand will continue to support the transport industry going forward.

"Manufacturing activity was also weaker than expected, due to widespread weakness throughout the food and beverage category.  Other areas of weakness included mining and the information, media and telecommunications industry.  Overall, weaker growth in these areas is usually a result of volatility and not reflective of any underlying weakening in trend growth.

"The services sectors were generally strong, as expected. However, one exception was public administration and safety, which fell despite strong growth in the employment indicator for this sector.

"The main area of downward revision in Q3 appears to be in agriculture, with activity now falling 2.9% compared to remaining flat previously.

"Overall, despite this weaker result, we still see an economy supported by strong tourism demand, construction activity, robust business confidence and healthy household demand."

Service industries grow

Stats NZ said service industries continued to grow, increasing 0.7% in the December 2016 quarter. The main drivers were business services; arts, recreation, and other services; and health care and residential care.

Agriculture fell 0.6% due to lower milk production. This, coupled with falls in forestry and mining, were reflected in lower manufacturing activity and lower primary exports. Manufacturing fell 1.6%, driven by falls in food, beverage, and tobacco manufacturing, and in transport equipment, machinery and equipment manufacturing. Exports fell due to lower exports of dairy products; metal products, machinery and equipment; crude oil; and logs and timber.

Household spending growth tapered off this quarter, increasing 0.4% after two consecutive quarters of strong growth. While there was a smaller increase in household spending, tourist spending was strong, up 5.1%.

GDP per capita fell 0.2% this quarter, following increases of 0.3% in the June and September quarters.

Annual GDP growth for the year ended December 2016 increased to 3.1%.

The size of the economy in current prices was $261 billion.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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61 Comments

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25

This cant be true.. what happened with National hopes that the economy is built on over inflated houses being swapped amongst each other ?? geez.. so all the bleating in parliament that nz is one of the best performing economies is out of the door now???

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17

Hardly surprising.

NZ Inc. is so closely aligned to property. With the controls introduced by the RBNZ to supress demand it was inevitable that this would flow through to the real economy

I suspect retail spending is down, confidence down.

Prices will follow suit. Seems to be the case with property.

Dare I mention the 'D' word?

Retail spending has been on a downward trend since 2002, so interest rate increases will just accelerate the decline.

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16

it seems we are following a well trodden path, elect a government for three terms, let their policy settings tip us into a recession, throw them out for the other mob and repeat

Unfortunately both parties also repeat the "lower interest rates and encourage an immigration and housing boom" policy.

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18

But but but...we're....Rockstar??

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20

The rockstar Shonkey was talking about is lying on the floor of a seedy motel room, out of his mind on alcohol and heroin.

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16

true, we might now be called the 'rocking' star economy... just a matter before it falls over

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25

No one realised our economy was Gary Glitter, and what it was doing to our kids...

@conrad...that's comedy gold. Sick...but gold.

New Zealand central bank Governor Graeme Wheeler needs to get inflation back to target and some observers think he has “plenty of room” to cut interest rates, Finance Minister Bill English said. Read more

What is it with this faux stimulus ideology?

Okay to be fair the annual GDP growth of 3.1% is pretty stellar by OECD standards .

The fall in household spending is a surprise because the reporting period included Christmas .

With regards to the overall fall in Q4 of 2016 , I don't know if we should be that surprised ,the Kiwi$ is strong making our food and timber and manufactured goods expensive , the Chch rebuild seems to be past the halfway mark , milk prices are down, inward migration is picked to fall ( 70,000 migrants in 12 months cause an instant increase in GDP ).

So whats the forecast ?

Never let facts get in the way of a good whinge... (I learnt that from the Trump)

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10

I see where you are coming from on this. Other OECD countries have social and economic problems they admit to but we have been promised that everything is stellar time and again.
Increasing child poverty... but GDP growth
Water quality... but economy on the right track
Underpaid labour, housing crisis... sign of a successful economy

With so many structural issues left unattended, there is only so much you can grow leveraging migration and easy access to money markets.

@Advisor , you make good points , the working poor ( and family poverty) , and a housing shortage are real problems that need to be addressed

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33

GDP growth of only $1B (0.4% of $250B) despite credit growth for the quarter of $4.77B

Oops

Yea, that's not good.
20% return on borrowed capital doesn't sound very productive.

Are you sure that the debt isn't actually dragging down the return?

Likely, dependent on how much is offshore borrowing.
Ig Debt growth is geometrically outpacing production growth, though, nothing good can come of it.

Also it isn't fair to compare same period growth and borrowings, as there will be a lag. i.e. this qtr's GDP is more a function of last qtr's debt growth.

I smell sarcasm Nymad ..!!

Talk about poetic licence to think that the $4 billion of credit was used as "Capital Investment"...

If we are true to form... I'm guessing most that $4 billion went to the household sector....

Just shows...NZ needs its "credit fix" just to hang in there... + lots of immigration

It doesn't matter if it was used as capital investment or not...
GDP is also a function of consumption - so where is the 80% going?

Probably second hand housing..???

Exactly.

BNZ's meth lab remediation loans?

You actually think that the entire $1 billion comes solely from the $4.77 billion borrowed capital? There are other growth avenues too undoubtedly. What he meant was that the GDP growth in dollar value is not even as fast as our rate of rising net debt.

It's as if all that debt creates a drag on the economy. I guess flipping houses in Auckland for ever increasing prices isn't a productive activity after all.

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26

Great. Let us roll the highlight reel for Q4 2016:
GDP growth: 0.4%
Population growth: 0.8% (as per Statistics NZ website)
So the real per capita GDP has fallen by 0.8% over the last quarter of 2016.

Turns out the only page out of the National Party playbook that had any substance: GDP growth has also failed them. We are clearly worse off with that record migration.

Bill English will never appoint you as his Adviser, as MIGRATION is his only saving grace..

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15

I am banking on an Advisory job opening with NZ First. Also I could get some good old OE, working with Hanson, Le Pen, Wilders or Trump. :P
To be honest, I have no qualms with migration; I believe it is vital for our socioeconomic development but when well-planned and targeted on plugging skill gaps. The current trends reveal a far from planned migration policy.
I have done my research on this, so bear with me (very basic calculations):
A student with any prior experience and any NZ qualification gets 100-120 residency points under our current system. Add any random job in NZ to that and it takes the total points to 160-180. Businesses won't stop hiring pre-trained overseas students who don't mind being underutilized and underpaid (since the wages here are significantly higher than the wages on similar jobs back home). There is no focus on quality and skill shortage under the current system. We brought more chefs into the country in 2016 than the number of cooking staff employers in NZ. This helps businesses keep the wages low and also boosts non-value added, low productive sectors of the economy.
Lastly, the claim that more migrants are coming because "everybody wants to hang out with the winners" is the stupidest thing I have ever heard (unfortunately a punchline that English has inherited from his predecessor).

i completely agree ..

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20

......nothing to see here, move along "sheeple" ...just leave it to the baby boomer mouthpeice, Hosking to spout forth some more rhetoric tonite on 7Blunt, as to just how we are all "punching above our weight" and doing so well.

For the last time, you can not run an economy buying and selling houses to each other.....

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11

Simply remarkable: GDP result released and the NZ Herald has a front page story "Rents in Auckland Skyrocket"....I look into the detail of the story and turns out Crockers are reporting a $8/week increase over several months....and the Barfoot report linked in the article opens with "Rents slow to rise"

No article about GDP to be seen.

Most local rags have a much higher standard of journalism....

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11

Oh, the herald clearly has a ponzi pumping agenda.
That and publishing trashy drivel

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12

So with the population growing at 1.5% per year and annual inflation running at about 2.5% then our GDP/head is going backward at over 2%. We are suffering from totally incompetent governance. This government really needs to go, and quickly.

Correction. Population is growing at 2.1% as per latest estimates. The increase from net migration is 1.5% and 0.6% from natural increase (births minus deaths). That makes this topic more worrisome.

GDP number is already adjusted for inflation. But still not great with negative per capita GDP for the last quarter. Recession within 12mths.

Thanks never knew that.

I have to agree that a recession is looking highly likely right now.

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14

And this is with unsustainable immigration and a foreign investment based property bubble...

If our Government wasn't in phony growth mode, they would see the reality that there is no productivity growth or any improvement for actual New Zealanders.

Where's our Trump to save us??

Winston peter :)

Winston Peters has one simple message
Gareth Morgan is selling a smorgasbord of complex messages

Guess who has the harder road to hoe

Do u have unusual Hair ...Chris J...??
Do u have an inflated ego...???
Do u answer in mono syllables and slogans..??
Do u have the, trump like, property empire part..?? ... Is there a Chris J tower/plaza...???

Maybe U u could be our Trump..??? I'll vote for you..!!

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11

New Zealand has had high GDP because, centrally, an earthquake decimated our second largest city and there was a short-lived price bounce in dairy commodities. The government appears to have no economic strategy beyond an attempt to maintain the dynamic of both events.

Immigration fuels construction and infrastructure needs, just as in Christchurch, but nationally. The trashing of our waterways and soils, minimum-waged - or near minimum-waged - immigrant workers, together with every policy opt-out accorded the sector, keeps the commodity dairy industry on life-support.

The fact is, buying houses from each other is the backbone of our economy - meeting the requirements of a knowledge economy, the capture of value via innovation, and all those other white-board diagrams.

Productivity is, presumably, in intensive care. Certainly it's getting no visitors, no look-in from the politicians. But if you're looking for growth, check out debt - that's thriving. And paying that back, it seems, is not going to be this generation's problem.

The financial sector is about 28% of our economy. While that number appears to be disproportionately high it must be good for our economy, much like those dodgy finance companies that failed.

I don't know how you arrived at that figure. The financial and insurance service sector was 5.9% of our 2016 GDP. The financial sector cannot be larger than the agriculture and manufacturing sector combined.
http://www.stats.govt.nz/browse_for_stats/economic_indicators/GDP/GrossD...

I stumbled upon a worrisome figure when playing around with this data. Rental, hiring and real estate services (excluding construction) make up a whooping 14% of the economy. This makes it the largest service sector contributor, much larger than professional & technical services (11%) and the combined 10% of health and educational services. Coupled with construction, a fifth of our economy relies on building, selling and leasing real estate (without accounting for the banking and insurance side of this equation),which explains the government's reluctance to back off from migration, property speculation and debt growth.

It's a figure that's stuck in my head. I'm happy to use your figures and wonder wtf is going on with rent and real estate services.

Commercial construction is ticking along reasonably well but I guess that what other people have said is correct: if there are issues with Auckland real estate that will hit the local economy hard.

I like the term ... "The FIRE economy". ( finance based economy )

Finance, Insurance, and Real estate..
I prefer this distinction in thinking of the financial economy vs the productive economy .

How the Financial Sector Consumed America’s Economic Growth

https://tcf.org/content/commentary/graph-how-the-financial-sector-consum...

rayward • a year ago
Smith alludes to it in his final paragraph ("U.S. asset markets rose in value"), but to state it more clearly: financial assets as a percentage of total assets has grown exponentially. That's the "financialization" of the U.S. economy. Why? Well, in part because other categories of assets have been liquidated or investment in them has flattened out or declined. What other categories? Productive capital (plant and equipment), for one. Why? Production has been shifted to other countries, especially China. Another reason for the financialization of assets is due to increased wealth inequality: those with wealth must invest, and financial assets are the most convenient. Indeed, historically high levels of inequality correlate with financialization of the economy, the 1920s being the most recent comparable period. And that didn't turn out so well.
https://ellenbrown.com/2012/11/08/its-the-interest-stupid-why-bankers-ru...

On the flip side of the US, Germany has been growing at a steady rate despite a bad bank turmoil brewing in its financial ecosystem. This European giant runs on high value manufactured exports, a service sector closely allied to its industries and a fair public tax system.
The service sector should work in the best interest of industries and not the other way round. Financial services should help businesses grow through easy access to capital and money management services. However, this sector, is regaining its pre-GFC position at the epicenter of the economy and we can do nothing about it.

Its the way the financial system works & incentivises... he who sells DEBT wins. Because the growth in debt means someone somewhere has decided that an extra bit of debt burden is payable... then everyones wealth has increased. Debt is wealth.

The underlying assumption is that there will be a corresponding increase in the "energy stocks" backing this new debt ... ie a resource that produces some sort of (energy) input into the economy.
Without this, you are just devaluing the value of money ...

National's Economic Policy to keep NZ afloat - immigrants building houses for immigrants building ..... to infinite - well at least until the Ponzi collapses as all good Ponzis must.

As each new lowlight is revealed by the media it becomes increasinly clear why the King of the Ponzis bailed on the 5th Dec. I feel a bit sad for farmer Bill - he is walking right into a gigantic shirtfront.

won't farmer bill keep getting some sort of regular payment for life for being prime minister? it could be as simple as that!

'Tuffley says weaker growth in Q4 was in the more volatile components and the underlying trend remains robust, albeit slightly softer than previously thought'. Hardly the apocalypse featuring in some posts here.

Dairy down due to weather. Kaikoura EQ disrupting transport. Robertson seems to think government mismanagement somehow is responsible for these events. I'm struggling to make the connection.

Middleman - all very true, and a country with a GDP of 2.7% is a rockstar in global terms these days, especially one that will be above 3% again when Q1 2017 data is available in a few months time. The comments above just show the politics of the bloggers, and to be fair embarressingly they've had little in terms of poor growth data to dump on in recent years, so let them have their moment of excitement - or is it misery, Im not quite sure what really delights them.

Yeah right!!! - get a life.

There was a time back in 2010 when central banks retained a ill-founded reputation for efficacy and a 2.5% OCR was considered an emergency rate.

Fact is productivity stagnant, no joy in it, just reality.

Grant A - you do realise that GDP growth is just debt growth... Its pretty obviousfor anyone but a Nat MP that all us rockstars have been doing is ratcheting up the value of our houses and devaluing our (aggregate) purchasing power

Middleman dairy is down and the key govt, together with the farmers and banksters have bet the house on it. Economic mismanagement, all eggs in one basket and to hell with the degradation and risk with it. The Blame should be rammed right up National.

Dairy is NZ's big problem?

Grant A, in dairying we see New Zealand's continuing political, economic and commercial failure writ large - a basic failure to understand and work towards earning a 21st century living. It remains overwhelmingly a commodity industry (merely a cork carried one way or another by global tides), supported by every shelter available to government policy, mired in debt - much of which has been deployed in the hope of farming for capital gain (thus merely a variation on our national property investment addiction). Meanwhile many of our most capable take their educations overseas.