New Zealand GDP jumps more than market expectations; expect RBNZ to remain on hold in near future

The gross domestic product (GDP) of New Zealand jumped more than what markets had initially anticipated, during the third quarter of this year. However, it remained below the Reserve Bank of New Zealand’s (RBNZ) target range, thus compelling the central bank to remain on hold in the foreseeable future.

New Zealand’s GDP rose by 1.1 percent in the September quarter. But while this was stronger than our and the market forecast, growth in the March and June quarters were revised to 0.7 percent, from 0.9 percent previously in the second quarter. This resulted in annual growth of 3.5 percent, a touch weaker than expected, data released by Statistics New Zealand showed Thursday.

The RBNZ’s growth forecast in its November monetary policy statement remained at 3.7 percent; the quarterly figure came in lower than the forecast. As expected, growth was relatively broad-based across industries, with strong population growth and construction activity continuing to underpin growth. The largest contributions to quarterly growth were from business services and transport services.

The construction sector majorly contributed to the growth figure, rising 2.1 percent on the quarter, followed on from the 7 percent rise through the first quarter of this year. Also, the sector’s activity is up 12 percent y/y, with the non-food manufacturing rising 2.6 percent over the past six months. Moreover, forestry and logging activity, which has also been supported by resurgence in demand from China this year, rose by a whopping 10 percent in the September quarter.

Services industries had a bumper quarter rising 1.1 percent.  Business services and transport were the standouts, with retailing also having another solid result. The services sector is an important beneficiary of the burgeoning population and surging tourist arrivals. With both expected to continue into 2017, services industries should continue to see firm demand.

Looking ahead, we foresee that the RBNZ will choose to remain on hold in the foreseeable future, focusing to reach its growth target, before opting to act. Also, markets barely reacted to the release of the data, showing further resilience among investors.

Meanwhile, NZD/USD has formed a 'doji' candlestick pattern at 0.6903, up 0.09 percent, while at 5:00GMT, the FxWirePro's Hourly NZD Strength Index remained slightly bearish at -90.50 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex