New Zealand’s GDP rebounded 0.9% in the June quarter and there were small upward revisions to the prior two quarters. This suggests more pressure on resources than the RBNZ has been estimating.
NZ GDP, June quarter 2023
- Quarterly change: +0.9% (last: 0.0%, Westpac f/c: +0.8%, market f/c: 0.4%, RBNZ +0.5%)
- Annual change: +1.8% (Last +2.4%, Westpac f/c +1.5%, RBNZ +1.2%)
- Annual average change: +3.2% (Last: +2.9%)
As widely anticipated, New Zealand’s GDP rebounded in the June quarter. Indeed, Statistics NZ reported a 0.9% lift in production – an outcome was well above the market forecast of 0.4% and the Reserve Bank’s most recent forecast of 0.5%. However, it was just 0.1ppts firmer than Westpac’s top of the market estimate of 0.8%.
Adding to today’s surprise were small upward revisions to prior quarters, with the recent December and March quarters revised to -0.5% and 0.0% respectively from -0.7% and -0.1% previously (i.e., the technical recession has been revised away, at least for now). As a result, annual growth in the year through to June stands at 1.8%, which is 0.6ppts above the RBNZ’s forecast and 0.3ppts above our estimate. After allowing for all revisions, the overall size of the economy in the June quarter is 0.5% larger than the RBNZ had estimated in the August MPS.
A portion of that forecast error will likely feed into the RBNZ’s estimate of the output gap, at the margin lifting the Bank’s estimate of the degree of inflation pressure that remained in the economy during that quarter. Given the ongoing uncertainty surrounding these figures – including the likelihood of future revisions – we think that the RBNZ will also choose to draw inference from a wider array of economic indicators in assessing how excess demand and inflation pressures are evolving, including developments in the labour market. Even so, we think that today’s data adds to the likelihood that the RBNZ will, at some point, feel the need to act on the slight tightening bias that it indicated last month.
Stepping back from the recent volatility in quarterly GDP outcomes, momentum in the economy is slowing with annual growth of 1.8% in the year to June down from the (upwardly revised) 2.4% growth recorded in the year to March. The economy is growing at a below trend pace, as reflected in the gradual increase in the unemployment rate over the past year. While rapid population growth is supporting demand, it is also helping to boost the economy’s productive capacity, and over the past three quarters cumulative output has declined in per capita terms. So despite today’s data, with past monetary policy tightening steadily gaining traction as mortgages are refinanced, and low commodity prices now weighing on rural incomes, we expect the economy will continue to flirt with recession over the coming quarters. Indeed, the BNZ-BusinessNZ PMIs suggest that the economy may be contracting in the current quarter, and annual growth in the year to September is likely to be close to nil.
As a result, we expect that the unemployment rate will remain on an upward trajectory, contributing to a gradual easing of inflation pressures. However, especially after today’s release, it remains to be seen whether inflation pressures will dissipate quickly enough to satisfy the RBNZ. On that score, attention will now turn to the various cost and pricing indicators in next month’s QSBO business survey and in the September quarter CPI report.
There were no huge surprises in the industry detail of today’s GDP report, which was broadly in line with what had been signalled by the various partial indicators released in recent weeks. As we had expected growth was driven by the services sector, with especially strong growth recorded in the public administration and safety sector (+2.8%) and business services sector (+2.1%). The education and training sector, transport and storage, and utility sectors also reported strong growth this quarter.
On the negative side, as expected growth was weighed down by lower activity in the retail trade and accommodation (-1.0%) and wholesale trade (-0.5%) and sectors. There were also declines in the forestry, fishing and construction sectors.
The expenditure-based measure of GDP, which is a slightly more volatile measure of activity, increased 1.3% in the June quarter and 1.9% in the year to June. This measure indicated a strong rebound in exports and strong growth in business investment and government consumption spending.