New Zealand’s GDP fell by 0.9% in the June quarter, substantially worse than expected. The surprises were narrowly concentrated in areas that are unlikely to respond to further interest rate cuts.
Key results
- Quarterly change: -0.9% (last: +0.9%, Westpac f/c: -0.4%, market f/c: -0.3%, RBNZ -0.3%)
- Annual change: -0.6% (last: -0.6%)
New Zealand’s economic output fared even worse than expected in the June quarter. GDP fell by 0.9%, well below our pick of -0.4% and the median market forecast of -0.3%. There were some minor revisions to previous quarters that largely balanced each other out.
The main points of weakness were as we flagged in our preview. The construction sector continued its prolonged decline, down 1.8% for the quarter, as the pipeline of work consented in previous years continues to run down. Manufacturing output was down 3.5%, in part an unwinding of a sharp reported rise in the March quarter (which we suspected was more survey noise than genuine). Professional services were down 0.4%, again partly reversing a strong rise last quarter.
On the positive side, there were gains in wholesale trade and retailing, though the latter was weaker than what was signalled by the quarterly Retail Trade Survey. The information and telecommunications sector rose by 1.8%, after falls in the previous two quarters.
As we’ve discussed in recent quarters, the GDP figures have a large seasonal component that is not being fully captured at the moment. This contributed 0.6ppts of the June quarter decline, even larger than the 0.5ppts that we had allowed for. That still suggests an underlying decline in activity for the quarter, against our estimate of a small rise.
The surprises relative to our forecast were concentrated in two areas. First, output in the financial services sector fell by 0.5%, a second straight decline. We had expected a rise given that lending growth has been picking up on the back of lower interest rates, but it appears that this factor may be driving a fall in value-added for this sector.
Second, healthcare fell by 0.7%, against our forecast of a rise. It’s not clear where the shortfall arose, although Stats NZ notes that it had to use an alternative data source this time due to some unexpected seasonality.
The weaker than expected GDP outcome will no doubt encourage the RBNZ in its intentions to cut the OCR further this year. However, we also need to consider the implications for the quarters ahead. Our view is that September quarter GDP growth was already tracking better than the RBNZ’s (very soft) forecast, and there are aspects of today’s figures that could see an offsetting bounce next quarter, further boosting the reported growth rate. We’ll take a finer look at the details before making any judgements.
