New Zealand economy expands slightly below expectations in Q2, likely to grow strongly in H2

The New Zealand economy expanded strongly in the second quarter; however, it was a tad lower than consensus expectations. In sequential terms, the economy expanded 0.9 percent in the June quarter, as compared with the consensus projection of 1.1 percent. Also, first quarter’s growth was upwardly revised to 0.9 percent quarter-on-quarter from 0.7 percent. The New Zealand economy is bolstering and is likely to grow strongly in the second half of 2016, said ANZ in a research note.

On year-on-year basis, the New Zealand economy expanded 3.6 percent in the June quarter, slightly below consensus expectations of 3.7 percent. Per capita growth expanded to 0.5 percent in sequential terms, while the first quarter’s print was revised up from 0.1 percent to 0.3 percent.

Out of 16 production-based industries, 11 registered growth in the quarter. As widely projection, construction sector mainly drove the overall economic growth, expanding 5 percent quarter-on-quarter, as compared with 5.1 percent in the first quarter. Construction sector accounted for one third of the total quarterly growth.

Primary sector activity rebounded 0.5 percent in the June quarter, following a drop of 0.2 percent in the first quarter. The services sector rose strongly by 0.7 percent, driven by population growth. This sector was the main growth driver over the past year. Accommodation and retail trade rose 1.9 percent in sequential terms. Meanwhile, manufacturing expanded 0.8 percent, as compared with ANZ’s projection of 2 percent. Food manufacturing grew 1.3 percent.

Expenditure GDP expanded 1.2 percent quarter-on-quarter, with building and housing boom providing the boost. Household consumption grew 1.9 percent. On the other hand net exports added 0.4 percent to the quarterly growth, with timing effects at play, added ANZ. Meanwhile, inventories were a drag on the economy growth.

The terms of trade declined in the second quarter. The gross national disposable income undershot GDP growth. The economic growth of the country appears to be strengthening. There might be certain statistical inventory-related noise in the third quarter; however, looking through that a continuation of strong figures and above-trend growth is expected, according to ANZ.

“Nonetheless, we continue to expect OCR cuts in November and February as the RBNZ responds to persistently low inflation and slipping inflation expectations”, stated ANZ.