The New Zealand GDP figures released today showed the country’s economy expanding at a slower pace than projected by analysts during the first quarter of the year. The New Zealand dollar fell relative to its US counterpart as the data hit the markets.
Regarding the actual figures, first quarter GDP grew by 0.5% on a quarterly basis, falling short of expectations for 0.7% growth but slightly above the respective growth rate during the fourth quarter of 2016, which stood at 0.4%. It should be mentioned that growth in the fourth quarter of last year was negatively affected by bad weather conditions. On an annual basis, the economy grew by 2.5%, below expectations and the previous quarter’s 2.7%.
Delving into the details underpinning the numbers, the GDP figures were negatively affected by the decline in activity in the construction sector. Specifically, building activity contracted by 2.1% quarter-on-quarter in the first quarter of the year, marking its first fall since June 2015.
Looking at the reaction in the forex markets, kiwi/dollar fell to as low as 0.7235 within the first few minutes of data release. The pair was trading at 0.7260 previously. It is worthy of mention that kiwi/dollar recorded a four-month high of 0.7319 in yesterday’s trading.
The Reserve Bank of New Zealand decided to keep its key cash rate at the record low of 1.75% in its latest meeting in May. The Bank next convenes to set monetary policy on June 22. Should the Bank view the latest GDP figures as indicative of weakness in the economy, then it could delay its rate normalization plans. Such a stance is expected to weaken the New Zealand dollar. The central bank’s forecast for first quarter growth was at 0.9%, significantly diverging from the 0.5% that was recorded.