Stats NZ says June quarter GDP surged 1% against expectations of 0.8% rise; biggest increase in 2 years; size of the rise means OCR cuts may now be off the table

GDP growth in the June quarter was a surprising 1%, well ahead of the economists' consensus pick of 0.8% and the biggest quarterly rise in two years.

The magnitude of the increase means that the possibility of Official Cash Rate cuts - brought up by the Reserve Bank - have likely been taken off the table. The RBNZ itself had picked GDP growth for the quarter of just 0.5%, so will have been very surprised by the outcome.

The New Zealand dollar quickly gained from US66 cents before the news came out to about US66.4c.

Statistics NZ said GDP per capita was up 0.5% in the June 2018 quarter, following a flat quarter in March.

Annual GDP growth for the year ended June 2018 was 2.7%.

The size of the economy in current prices was $289 billion.

Growth was broad-based, with 15 of 16 industries recording higher production. Mining was the only industry to decline, reflecting one-off factors.

“Once again service industries led growth. Goods-producing and primary industries also saw rises this quarter,” Stats NZ's national accounts senior manager Susan Hollows said.

The largest contribution to growth came from agriculture, up 4.2%.

Growth of 1.0% in the service industries was broad-based, with all industries recording a lift.  

“The real strength of services this quarter lay in a consistent performance across a range of industries,” Hollows said.

Retail trade and accommodation, wholesale, and transport industries all rose, reflecting higher household spending.

Within primary industries, agriculture’s strong performance was supported by growth in forestry. A 20% fall in mining – its largest fall in 29 years – provided a strong offset.

“Quarterly growth in agriculture was the strongest since September 2014, with the dairy season ending well after earlier weather disruptions,” Hollows said. “An unplanned shutdown stalled gas production, which led to the fall in mining as well as some offset to manufacturing activity.”

Manufacturing was further affected by lower petroleum and chemical product manufacturing following a planned shutdown at Marsden Point refinery.

Growth in electricity generation was the largest in nine years, with wet and cold weather likely to have influenced both production and demand.

What does it mean for the RBNZ?

ASB economists Nick Tuffley and Jane Turner noted the 1% quarter-on-quarter increase in GDP was well above the Reserve Bank's August Monetary Policy Statement (MPS) forecast of 0.5% growth. 

"Growth over the quarter was reasonably broad-based, and would have been stronger if not for some temporary disruption to activity in the gas industry. The RBNZ faces a considerable upside surprise to its near-term GDP growth outlook ahead of next week’s OCR review, but some of this could be tempered if the RBNZ revises its second-half 2018 GDP growth forecasts lower," Tuffley and Turner said. 

"Focus will now shift to how fast the economy grew over the third quarter, with concerns that weak business sentiment points to a slowdown in the underlying trend pace of economic growth over the second half of 2018. We expect the RBNZ to wait until February 2020 before lifting the OCR, and the risk of a rate cut over the next year remains on the radar."

Westpac economist Michael Gordon said not only was the overall result stronger than expected, the details were more encouraging for the economy’s growth prospects ahead.

"We expected a solid underlying picture, but with some one-offs that would boost the growth rate in the June quarter. Instead, growth was shared widely across the economy, and the one-offs - in areas such as electricity, transport and government services - weren’t as big as we expected, which means there’s less risk of an unwind in the next quarter," said Gordon.

"Today’s result is significant for the Reserve Bank’s OCR decision next Thursday. The RBNZ has said that if economic growth doesn’t accelerate in the way that it expects, it is likely to move towards OCR cuts. Its forecast in the August Monetary Policy Statement was for a 0.5% rise in GDP for the June quarter, though there has been a substantial amount of data since then pointing to a stronger number. Today’s result doesn’t guarantee that the economy is on an accelerating path, but it does argue against the case for OCR cuts in the near future," Gordon added.

"The NZ dollar-US dollar rose 0.5 cents on the result, and two year swap rates rose by five basis points."

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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77 Comments

Well done John Key and National, good work!

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Yes its easy if you just sit on your hands and do nothing - maybe take a few selfies

Funny, everyone was screaming about how the current government was a shambles and sending us down the drain.

Now that there's a good result, of course it wasn't the government's doing - the government can only be held responsible for bad results.

3rd quarter likely to be a good result too, thanks to the winter energy payment and WFF increases kicking in.

Yeah, they had their headlines ready either way:.

GDP growth above expectations "National's great work continues to have effect".

GDP below: "Labour has screwed the pooch".

Nzdan should be Ozdan as this is the Phar Lap story all over. I thought only Aussies could go so low and still look themselves in the mirror.

My comment was mocking the Blue Flag Brigade. Deliberately ambiguous because i enjoy baiting people.

Why would you fish for turds?

Well done Todd Barclay, Aaron Gilmore, Mike Sabin and Judith Collins. Good work!

Wow. Taxinda is an economic mastermind. Better add another $100k to those asking prices because house prices must be on the rise with the economy this strong.

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So the PM did release embargo’d information after all

Seems likely, but no proof. According to Stats dept that information should not have been shared with her, but without person/s responsible doing a mea culpa I am not sure it could be proven. Will probably be questions in the house over it.

No, it's really very easy to understand what happened.

Jacinda had seen the crown accounts, which generally reflect overall GDP figures. The crown account results were good, and so therefore they were "a hint" that the GDP results would also be good.

Very interesting. Hard to know whether the poor sentiment is a leading indicator or just a distraction.

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Didn't the poor sentiment start about 1 year ago? It must have quite a lead!

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The bad business survey results were just National supporters throwing their toys out and are not a true reflection of the economy's performance.

See https://www.stuff.co.nz/business/103016504/fact-check-business-confidenc...

I see it all the time like at boat shows where everyone is bemoaning the increase in minimum wage and a potential capital gains tax while deciding on whether to upgrade to the 46 or 52 ft Riveria. When I suggest they pay their employee's a decent wage and settle on the 46 footer you can hear a pin drop.

These business confidence surveys are a waste of time.

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A lot of the whining comes from the sweatshops that have sprouted up throughout the country, courtesy of National's open door migration policy. Labour's regulatory changes affect scores of lowly education providers, cheap takeaways, 2-dollar stores, car sellers and not to forget Kiwi and foreigner house flipping businesses.

Terms of trade are at relatively elevated levels. Managers running their construction businesses well are quite upbeat about market conditions and employees at most consulting firms are flat out busy with an insane number of projects. Businesses with strong fundamentals have no time or reason to bitch and moan about the economy.

Sure sign of the impending crash.

Agreed, this dead cat just won't stop bouncing (and even looks like it is walking, eating and shitting).

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Good news. Economy under Labour doing OK. Long may this continue.

Remarkable feat by the NZ economy indeed.
Quite a significant increase in business investments, especially in transport equipment and intangible fixed assets for the quarter.
A noteworthy fact: our GDP per capita rose at a fair 0.5%, the fastest level since the quarter ended December 2015 after several quarters of abysmal performance.
Population growth is still at elevated levels, so the impact of slowing migration is yet to be seen.

see how it looks when we stop borrowing, it's easy to drag the future forward, as long as the future turns out to be bigger, Thats whats happening, debt is a requirement of growth today while the real growth is absent.

True. An ex-CFO of Lehmann, who served the bank from 1994 to 1998, said on Bloomberg last night that monetary stimulus post-GFC was conceptually directed towards reliquidation of money markets to provide financial relief to those companies and individuals with excessive debts on their balance sheets.

Banks and politicians, however, saw this as a great way to artificially prop up the economy through speculation, and turned a blind eye when the excessive liquidity was being used to fund asset transfer transactions instead of value creation. As a result the expansionary policy created more of what it was meant to solve.

Law of unintended consequences.

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Can't wait for Question Time.
After continual hounding by Amy Adams at Question Time, be certain that there will be patsy question from Labour and Robertson will be beaming like a Cheshire cat.

Play the long game. The objective is to suck in the COL and it’s supporters into attributing this to their Government and governance. Then they are trapped when it turns the other way. Can’t have it both ways.

Except that any turning of the other way is highly likely to be driven by either a disaster, or international pressures.

Yeah right. So the Government can only have a positive effect? Sounds like the cult of Taxinda is strong with some.

Cows got nothing to do with Labours.

Pretty much true, 4% growth of primary production industry is independent of govt. Govt policies can hamper it over short or long term and can slowly grow industry over long term, but they can't do anything to influence the earnings or growth over short term - that is set by international prices and weather etc. But everyone gets lucky sometimes, and Labour needed some good news.

Wondering about Jacinda and embargo'd information now as-well.

But mostly, I can't wait to listen to Hosking tomorrow morning.
"Because you need at least 0.8 or 0.9 to rectify the 0.5

Because what we need is... you had 0.5 in the first quarter, and if you start annualising out the 0.5 you end in the 2's and that's not acceptable, you need to be in the 3's"

http://120.138.20.16/WeekOnDemand/ZB/auckland/2018.09.18-07.45.00-S.mp3
Time - 3:50

Why would you put yourself through the pain of listening to that clown. Surely you have better things to do (e.g. watching paint dry).

Clearly it's so I can feel smug when this sort of stuff occurs.

I do also enjoy listening to the politicians be grilled by him. He's got a VERY clear National bias in his show. But to hear opinions direct from the politicians on Tuesday and Wednesday I do enjoy listening to.

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Massive amounts of mental gymnastics required by Nationalites today. Be strong guys, no Bridges has got this.

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Exactly, this really shoots the business confidence narrative in the head. All those complaints about the business environment look ridiculous. If you ignored business confidence it was obvious things are still going pretty well - noting we are in a difficult transition from the John Key/Bill English sugar rush model of economic management (high immigration, specuvestors, and low wages) to a more sustainable model based on exports, decent jobs and decent wages.

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Seems Bridges can't catch a break. Hound Adern about GDP , and it comes out stronger than expected.
Hosking will be crying into his latte.

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That's been National's Achilles heel in NZ politics. The party has always been a one-trick pony. Self-proclaimed experts on headline GDP growth have nothing else to offer. What gets to me the most as a centre-right voter is their lack of efforts towards productivity improvements and freeing up the markets.

Our export complexity actually fell miserably during those 9 years under National, we are now placed alongside UAE in the MIT-Atlas global rankings and we were surpassed by ex-communist countries Hungary, Slovenia and Czech in R&D spending to GDP.

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Doesn't look like the government is nuking the economy, does it.

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Labour or National, does it really matter? They both do about the same things. What matters is what they don't do: addressing our productivity.

BdB - Productivity is either ve labour rates, or it's a trend towards energy efficiency.

Unfortunately, physics is real, not like economics. Energy efficiencies follow a law of diminishing returns, trending to zero as thermodynamic limits are hit. Wages can't go below zero either - although it can be argued that increased debt is zero wages in drag.

But the days of 'productivity gains' in percents, are over. Forget blame, accept reality.

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GDP up, dollar down. Result not in least bit surprising. The annual current account deficit widened in the June quarter to $9.5B, or 3.3% of GDP is of concern. I would be interested to see how Crown accounts are tracking in 6 months time too.

If NZD drops by 6% (as it did in June Quarter) then that boosts export commodity earnings by about the same amount right? Which would in turn boost the export dominated agricultural sector by (say) 4%? But it also leads to lagging inflation as cost of all exports goes up (and we import more than we export). So does that mean we can't hope for it to continue? And in fact should we expect a big GDP growth drop in the next quarter as resulting inflation hits? Or will that drop be deferred by continuing fall in NZD?

Well done Foyle, you've smashed the nail square on the head. Now that was the June quarter, and we're nearing the end of the September quarter where things are already feeling a little bit more expensive and some of those cost increases will now be flowing into production costs. All the while our current account deficit widens.

Nic, did you not predict GDP to turn negative in the 1st quarter of next year?

I did indeed Yvil and I still hold by that.

These figures are April, May and June. Since then a lot has changed, petrol taxes, more dollar weakness, foreign buyer ban, lower confidence results, negative business borrowing. Remember that we won't get GDP for results for Q1 2019 until the end of May. Wait and watch.

Been educating myself a little... Seems CPI rise generally lags exchange rate fall by about 2-3months. NZD started falling fast in late April, so expect CPI to skyrocket up in Sept quarter, and stay there for Dec quarter too given ongoing falls in NZD. That is going to kill GDP growth in coming quarters. Given poor business and consumer sentiment there's a pretty good chance we are headed into a marked downturn or even recession in near future.

Cool news! Economic transitioning. Numbers starting to show it. Making carbon with trees sounds alot more sound than digging it up.

Now CBD (cannabis) cropping. We grow grass better than anyone. Cannabidiol is a naturally occurring cannabinoid constituent of cannabis. It was discovered in 1940 and initially thought not to be pharmaceutically active. It is one of at least 113 cannabinoids identified in hemp plants, accounting for up to 40% of the plant's extract. Wikipedia. It's a good crop.

Genuine GDP growth or is it just a bit of inflation on transaction costs? Next move in the cash rate? Up and earlier than 2020.

Cash rate up? Was wondering how you would try spin this positive news to point towards your housing market crash.

BTW, there was a guy that posted on here a lot years ago, constantly going on about how the property bubble was about to burst (going back to 2012ish now). Name was ‘Nic the NZer’. This wasn’t you by any chance?

BLSH. Sorry kiddo, wasn't here in 2012.

Tell me what's been happening in the US this year with their surprise rises in GDP? Which is actually just inflation. What's been happening to the 10 year treasury bond? And what have they been doing and are likely to continue to do, to slow down inflation?

Now couple of other things to consider. I went for a haircut this morning and the lovely lady who cut it has increased her price from $24 to $27 since I last saw her 6 weeks ago. Then I went for a round of golf with a mate and paid $5 more for the round than when we played the same course 3 months ago, have to say the course wasn't as good as it was 3 months ago (had a lot of rain I guess) but it was still nearly 10% dearer to play. We finished and went for a coffee and paid $5.50 rather than $5 on my previous visit to the same coffee shop. then I put petrol in the car on the way home and we all know how everyone loves a moan about that at the moment.

Now luckily I have a bit of cash to spend still, but was all my spending this morning about GDP growth? Or was it inflation? Have a quick think on it but don't strain a muscle.

What next, smashed Avocado on toast? You'll be needing to re-mortgage soon at this rate Nic.

Well Mrs The Point, let's just hope that inflation doesn't go so far that those of us that don't have a mortgage have to sell up to pay for living expenses... I think I should be okay, but there will be a few who won't be liking these price rises, I mean GDP rises.

But hey-ho, it's lovely and sunny today so I think I'll go and have a beer or two at my local to celebrate these excellent numbers and that extra 50c a pint that my favourite tipple has gone up by over the past 6 months will be worth every cent.

GDP growth data is released in real terms

The way you spent your morning you must be a farmer too. Welcome to our lifestyle. By the way after discount card petrol in Whangarei was under $2 today. Helps make up for having to wait at the traffic lights for nearly 30 seconds to get there.

Well that was a wonderful trading morning.

Do tell? What were you trading?

Aah Mrs The Point, I trade anything except mothers and houses. Today was all about selling AUD/NZD. , although some has been closed most is still open.

That economic growth statistics (such as GDP) do not tally closely with business confidence statistics is well known to economists and statisticians.

Thus, we ought not be surprised to note that while economic growth is reasonably strong currently - business confidence is reported as having slumped in reputable surveys of business opinion.

In fact, correlations between the opinions of businesses and the level of economic activity are virtually non-existent.

Similarly, correlations between business confidence and share prices indices are typically weak.

TTP

Okay.

Sun rises in the morning. Popular opinion among business people is that it is did not rise. TTP points out that popular opinion among business people is that the sun did not rise.

Fake News. Keep telling yourself business is doing great, I see otherwise.

Is that you Donald?...

OMG President Trump is actually here with us on interest .co - under the guise of Carlos67. SURPRISE

It has always been easy to increase GDP - suck in more immigrants. To get an increase in GDP per Capita is harder but can be done by chosing immigrants who are of above average productivity. This is effectively what National did just over a year ago by increasing the base income required for an application for residency; this was despite the screams of various vested interests desperate for docile labour at slave rates (restaurants, carehomes, dairying, etc).
The COL as been sensible enough to continue with this policy and started to try to cut down those who cheat by buying jobs (ref https://www.radionz.co.nz/news/national/366859/indian-woman-faces-deport...).
If the COL allow this woman to stay and prosecute these scammers and revoke their citizenship then NZ's economy has a chance of further growth.
0.5% growth in GPD per capita - only needs another 59.5% to put us back where we used to be near the top of the OECD wealth list. Strange how GPD per capita is not a political issue; it used to be but all flavours of government have failed to achieve it. Maybe a political party that has the slogan "Would you like a 60% pay rise after tax? - we will make NZ productive again" will succeed.

Docile labour? Surely not all the migrant courier drivers and gas station staff I encounter are tech titans and nuclear physicists here to boost the productivity of NZ Inc through the stratosphere, of course that is what THEY tell me!

Boost in GDP huh? That will be those darn off shore drilling bans ripping the heart out of the economy! Or it could be the sense of social security filtering through to the working class which in hand is giving them a little more confidence to actually spend a few more dollars?

For a less positive take on the data: https://croakingcassandra.com/2018/09/20/a-picture-in-continuity/ which concentrates on a drop in labour productivity.

I see your point but to be fair, stalled productivity in NZ has been an issue for decades, which cannot be pinned on incumbents who have served us for less than a year. However, the government is taking the challenge head-on unlike its predecessors. R&D tax credits, freeing up construction bottlenecks, changes to work visas etc. all qualify them credit for a decent start I suppose.

I'm skeptical about R&D tax credits. If you run a business you either choose to invest in research or you don't and a tax credit will not change your mind. Certainly gives some businesses a way of fiddling their taxes by declaring almost anything as research and development. Is there an correlation between countries with R&D tax credits and productivity growth? If it was that simple how did National miss it?
I don't mean to be too negative - maybe our new govt will tackle issues that free up productivity - for example if property prices appear to be going down maybe those who do have money will invest in businesses instead of property.

I would be highly suspicious of creeping expansion of regulatory overheads; particularly health and safety, but also more holidays and leave entitlements, employment law minefields to be cautiously navigated (requiring HR specialists), various cultural obeisances (in public sector). Public service in particular is mired in unproductive bullshit.

Why are the June quarter GDP numbers released 2 months and 20 days after the period it applies to? Are they not important numbers? Time is of the essence, it's a joke, in 10 days we're done with the next quarter.

Maybe it was easier to release the numbers under a government that didn’t do much else with its time?

I'm not an expert, but unfortunately the data takes a long time to flow in for these figures. Even after two months these figures will be preliminary, and may be revised as more data comes to light over the next few months/year.

If you have ways to get the data out faster or more reliably, Stats NZ would no doubt love to hear from you.

US releases 1st estimate of GDP data about 3 weeks after end of quarter. They then update monthly for next 2 months. Not sure why it is harder/longer for NZ to do it.

One advantage of doing it at end of following quarter is that you can have staff working on it full time. They finish just before they get the data for the next quarter.

Like I said, not an expert, but I remember the discussion back in the UK when the +/- 0.1% in the figures was the difference between a recession or not, so people cared more. The later revisions could easily mean that the country actually was in recession the previous year, or vica versa.

I would imagine there's a 'speed vs accuracy' trade-off, maybe the US figures are more prone to revision than then NZ figures? I don't really know.

I feel sorry for Boatman-almost. He was bitching about the poor deposit rate for Boomers such as himself and he goes on and on about how useless the government is. Now we have surprisingly good growth figures and further interest rate cuts off the table. It's just not fair. I suggest he gets in touch with his hero JK at the ANZ and surely he can arrange a special deal for such a fervent supporter as himself.

Are increases in govt. welfare spending boosting the GDP figures????

Yes.

As I understand it, GDP provides a guage of the size of the economy - not necessarily the health of the economy.