Data Flash (New Zealand)
GDP growth of 0.1% qoq estimated in Q3 2001
Release date: Friday, 21 December, 10.45am (NZT) Deutsche Bank forecasts: 0.1% qoq / +2.6% yoy / 2.2% ann. av., balanced
risk RBNZ November forecast: 0.6% qoq / +3.2% yoy
This week saw the release of the final major partial indicators of Q3 GDP. Yesterday's manufacturing survey was
particularly weak. This has led us to revise down our preliminary growth estimate to just 0.1% qoq, compared to 0.5% qoq
The mid-winter electricity crisis is estimated to have subtracted 0.4pps, if not more, off growth in Q3, while lower
meat production is expected to have shaved 0.1pps off growth. These impacts should reverse in Q4.
Our Q3 GDP forecast is substantially weaker than the 0.6% qoq projected by the RBNZ in its November Monetary Policy
Statement. However, we expect Q4 growth to exceed the 0.0% qoq result expected by the Bank.
As a result, at this stage, we continue to think that the RBNZ's 50bps easing on 14 November was probably the last for
the current cycle, with the probability of further easing put at 30%. However, a weak GDP outcome could see the market
price in further easing.
Monetary Policy Implications
The RBNZ forecast growth of +0.6% qoq in its November Monetary Policy Statement. At face value, the weak outcome that we
expect might suggest that further easing is likely in the New Year, especially as we also expect growth in Q2 to be
revised downwards as a result of the introduction of a revised manufacturing survey. That survey saw estimates of growth
in real manufacturing sales in Q2 slashed from 4.2% qoq to 1.8% qoq.
However, for two reasons, we are cautious about reaching a quick conclusion, especially ahead of next week's data.
First, the Q3 GDP data will also incorporate revisions to earlier historical data stemming from the release of the full
annual national accounts in early November (for the year to March 2001). This could have a bearing on the RBNZ's
estimate of the output gap.
Second, we expect GDP growth in Q4 to outstrip the RBNZ's estimate of a flat quarter, in large part due to a rebound in
the sectors impacted by the electricity crisis. As a result, growth of 0.6% over H2 2001 - as projected by the RBNZ in
November - still seems achievable.
Therefore, at this stage, we continue to think that the RBNZ's 50bps easing on 14 November was probably the last, with
the probability of further easing put at 30%. That said, the publication of a weak result could reinvigorate easing
sentiment in the market, with some commentators calling for a further 50bps cut at the March MPS. By contrast the market
is pricing a 30% chance of a 25bps easing - in line with our view.
Detailed Breakdown of GDP Forecasts
Our forecasts for the key components of both the production and expenditure based components of GDP are set out below
(the actual forecasts are based on a considerably more detailed breakdown of the data).
Primary Industries: The primary industry is estimated to have made a small positive contribution to growth in Q3,
largely due to stronger activity in the mining and forestry sectors.
Manufacturing: The primary component of this sector (meat and dairy) is estimated to have declined by 3% qoq following
the 7% qoq rise recorded in Q2. Reflecting production cuts during the mid-winter electricity crisis, impacting the
metals industry in particular, the remainder is expected to have declined by 2% qoq. As a result, overall value-added in
the manufacturing sector is expected to have declined 2.3% qoq - reversing the growth recorded in Q2.
Construction: A further sharp rise in non-residential construction and a more modest rise in homebuilding is expected to
contribute 0.16pps to GDP growth in Q3.
Services: The services sector is expected to have made a much more modest contribution to growth in Q3 than has been
typical over the past year, partly due to weaker sales in the wholesale sector. The real estate and business services
sector is expected to have been the key driver of overall growth in the services sector.
Government: A continued expansion of spending by local government - at the rate of close to 6% yoy - is expected to have
contributed 0.16 pps to GDP growth in Q3.
Unallocated/Residual: This component - which captures residual seasonality and unallocated production - is expected to
add 0.03pps to growth in Q3.
Private Consumption: Private consumption is estimated to have increased by just 0.2% qoq in Q3, a little weaker than
growth in retail sales (the latter includes tourist spending which is reclassified as `exports - services' for the
purposes of the national accounts.
Public Consumption: Following growth of 2.8% qoq over the first half of 2001, growth of 0.5% qoq is expected to have
occurred in Q3.
Investment: Our indicator model suggests that plant and machinery investment has declined by around 13% qoq in Q3,
following a strong rebound in Q2. This fall is expected to have more than offset positive growth in construction
activity, leading to a 2.5% qoq decline in overall investment, making a negative contribution of 0.8pps to GDP growth.
Stocks: Last quarter's unexpected stock decline in stocks is expected to have been reversed partially during Q3, adding
0.7pps to growth.
Exports: Weaker primary sector exports are expected to have led a 1.5% qoq decline in goods exports. Growth in tourist
arrivals prior to 11 September suggests that services volumes will have made a partially offsetting contribution.
Imports: The Overseas Trade Indexes suggest that goods volumes fell by a little over 1% qoq in Q3, reversing the rise
recorded in Q2.
A range of other indicators, not used directly in constructing our GDP estimate, support our view that GDP will post an
the number of hours worked rose 0.1% qoq on an Household Labour Force Survey (HLFS) basis and 0.3% qoq on a Quarterly
Employment Survey (QES) basis;
full-time equivalent employment rose 0.1% qoq on both an HLFS and QES basis;
the NZIER's measure of capacity utilisation rose in seasonally adjusted terms while an indicator of trading activity
from the same survey, although declining, remained at a reasonably robust level.