Construction sector drives New Zealand GDP growth in Q1

The New Zealand economy started this year on a strong footing. According to Statistics New Zealand, Gross domestic product (GDP) increased 0.7 percent in the first quarter of 2016, following an increase of 0.9 percent in Q4 2015. The first quarter growth came in above the median market projection of 0.5 percent and Reserve Bank’s projection of a rise of 0.6 percent.

However, the surprised growth was offset by the certain revision to the 2015 growth on the downside. Annual GDP growth for the year ended March 2016 edged down to 2.4 percent while the size of the economy in current prices was $249 billion, stated Statistics New Zealand.

Domestically-oriented sectors, particularly services, posted strong growth in demand, whereas export-related sectors continued to struggle due to weak global conditions. Health industries and construction mainly drove the first quarter growth; however, it was partially countered by manufacturing and primary industries that recorded a decline.

Construction grew 4.9 percent and reflected higher construction-related investment. Investment in other construction grew 12 percent, which was the highest quarterly growth since June 2014, said Statistics New Zealand. Residential building investment was up 4.2 percent, which was due to strong growth in Auckland and Waikato. However, investment eased in Canterbury.

A strong rise in building permits at the end of 2015 had already hinted at strong pipeline of building work for this year. Retailing and accommodation, transport, and healthcare seemed to have advanced most from the population growth. Overall, the services sector expanded 0.8 percent, driven by population growth of 0.6 percent in the quarter.

Food manufacturing, especially meat processing, was the main weak spot for the first quarter. Timing was a major problem to a greater extent. But the most recent processing figures seem to have come back to normal for this time of 2016.

Expenditure GDP, which is seen as a less reliable figure on a quarterly basis, grew modestly by 0.5 percent, mainly led by fixed asset investment. Meanwhile, household consumption grew just 0.4 percent on sequential basis. Net exports weighed on the overall GDP figures, subtracting 0.4 percentage points.

“We’re still inclined to forecast one further OCR cut at the August Monetary Policy Statement – bearing in mind, the Reserve Bank’s stated position is that a rate cut in August is more likely than not if things pan out as expected," said Westpac in a research report.