New Zealand economic growth likely to have accelerated in Q2 2017

The New Zealand economic growth is expected to have accelerated sequentially in the second quarter of this year. According to a Westpac research report, the economy is likely to have grown 0.8 percent in the June quarter on a quarter-on-quarter basis, while it is expected to have grown 2.8 percent over the past year.

The second quarter growth forecasts partially reflect a rebound after weakness in the last two quarter, when the economy rose 0.4 percent in the fourth quarter of last year and 0.5 percent in the first quarter of this year. Both times, the economic growth was held back by transitory factors. Milk production was subdued at the end of last year because of poor weather and low returns to dairying.

Moreover, transport services in parts of South Island were disrupted by the Kaikoura earthquake last November, then the wildfires around Christchurch in February. Since these disruptions have passed, both agricultural production and transport services are likely to have recovered in the second quarter, helping push the economic growth up to 0.8 percent.

Moreover, solid retail spending also stimulated GDP growth in the second quarter. Retail spending levels were up 2 percent in the quarter, supported by solid population growth and the strong tourist season. Balanced against the above boosts to growth, there are signs of weakness in some parts of the economy, stated Westpac. Most marked has been the deceleration in construction.

The Building Work Survey recorded a drop in construction activity of 0.5 percent in the second quarter after a sharp fall of 3.3 percent in March. Despite a huge pipeline of planned work and growing demand for housing, several factors are giving a brake on building activity, particularly in Auckland. These include rising costs, restricted capacity and a tightening in credit conditions.

Also, some weakness in the manufacturing sector is visible, with the latest Economic Survey of Manufacturing indicating just a small lift in output in the June quarter. Growth in food manufacturing was unsurprisingly solid June, with large gains in dairy and meat processing on the back of more favourable farmgate prices.

Given that most of the rise in activity in the second quarter is due to temporary factors, such as the rebound in agricultural production and spike in tourist arrivals, this would likely be the high point for economic growth.

“Looking to the remainder of 2017, we expect that growth will ease off. Notably, it seems likely that construction (which was a key driver of GDP and employment gains in recent years) is in for a period of more gradual growth”, added Westpac.

At 21:00 GMT the FxWirePro's Hourly Strength Index of New Zealand Dollar was neutral at -30.2526, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 15.311. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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