NZ Q3 GDP rises by 0.3 pct, missing market expectations; softness unlikely to persist in coming quarters

New Zealand’s gross domestic product (GDP) rose by 0.3 percent in the September quarter, below expectations. This softness, is however, not expected to persist into the coming quarters, and data revisions actually paint a more positive picture about the economy's recent momentum, according to the latest report from Westpac Research.

On a more positive note, Stats NZ’s annual round of GDP revisions has once again painted a more upbeat picture of recent history. GDP growth was revised down slightly for 2016, but was revised up quite a bit over 2017.

The result is that the slowdown in growth over the last couple of years has been more modest than previously thought, and that the economy still has reasonable momentum, with growth tracking at around 3 percent a year.

On balance, though, it was still a disappointing GDP report, and the market reaction on the day is understandable – the New Zealand dollar is down about 20 points to 0.6780, and swap rates fell by about four basis points.

Despite the upward revisions to historic GDP, the Reserve Bank will probably still conclude that the economy is not running as close to its full potential as expected, and that inflation pressures may be slower to build.

"Our forecast for December quarter GDP growth remains at 0.8 percent. Consumers are becoming a little more confident as petrol prices have pulled back from their highs, business investment us looking stronger, mining output should continue to recover, and milk production is running ahead of recent years as it enters the peak of the season," the report commented.