Data Flash (New Zealand) NZ GDP - Q4 2000
Key Points
GDP (production measure) increased by +0.5% qoq in Q4, following a revised 0.8% rise in Q3.
The median market expectation had been +0.75% qoq, while the RBNZ had forecast +0.6% qoq.
GDP increased by 1.6% between Q4/99 and Q4/2000, while the annual average increase over the calendar year 2000 was 3.4%.
The breakdown of growth amongst the various production sectors was much as expected, with a continued strong performance
of the primary sectors and related manufacturing and transport activity. Following a small rebound in Q3, construction
made another negative growth contribution in Q4.
The expenditure breakdown reflects the export-driven momentum of the economy, with internal demand relatively weak at
the end of last year. Exports increased by 3.4% qoq, while domestic demand contracted, due to lower private and public
consumption. On the investment side, a strong rise in plant and machinery investment offset weak construction activity.
Commentary
The outturn for Q4 GDP was a little weaker than the market expected, which could be interpreted as evidence that the New
Zealand economy has begun to slow in line with its trading partners and that further weakness should be expected over
coming quarters. That appears to have been the interpretation of the currency markets in particular, with the NZD
falling 40 bps to 0.4050 after the release.
However, it should be remembered that, unlike global trends, indicators and initial data for Q1 suggest that New
Zealand's growth momentum may well have picked up over the past three months. In fact, consumer and business confidence
surveys taken in mid-March were surprisingly positive. At the same time, the re-emergence of drought conditions in some
parts of the country poses a risk to agricultural production. Our preliminary forecast for Q1 GDP growth is +0.6% qoq -
the same as that forecast by the RBNZ in the March MPS.
Today's data and latest domestic indicators for Q1 are likely to be interpreted as `neutral' by the RBNZ. More
importantly, the Bank is likely to pay close attention to US data and early signs that the cycle may have bottomed. The
rebound in US consumer sentiment - if confirmed by subsequent surveys - would be especially heartening. Should this be
followed by further data suggesting a consolidation phase elsewhere in the US economy, the RBNZ may become hesitant to
reduce the cash rate further from its current level, especially if the Q1 CPI (due April 18) prints much higher than the
Bank's -0.1% qoq expectation (we expect +0.1% qoq). Indeed, the Bank is likely to be uncomfortable with the level of the
exchange rate. On a trade weighted basis, the NZD is around 3% below the value underlying the recent RBNZ inflation
projections.
Notwithstanding these considerations, we believe that the global outlook will remain sufficiently uncertain to convince
the RBNZ that another easing step of 25 bps is warranted in May (60% probability). Following that, we expect the Bank to
leave rates on hold for the rest of the year.
Ulf Schoefisch, Chief Economist, New Zealand
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