GDP growth lifts with Cup win, says HSBC

GDP growth lifts with Cup win, says HSBC

Growth in the New Zealand economy was solid in Q3, up 0.8% (in line with HSBC's and above market expectations). The Rugby World Cup was a major contributor to the quarterly result with 80,000 extra visitors helping to lift the retail and accommodation sector by 2.5% in the quarter. While the event was a one-off, the outlook for growth remains solid with business confidence stabilising at positive levels and the rebuilding of Canterbury is still not fully underway while still elevated commodity prices support incomes.

Facts
- GDP rose by 0.8% in Q3 (HSBC expected 0.8% while the market expected 0.6%). Over the year, GDP rose by 1.9% (HSBC expected 2.4% while the market expected 2.2% y-o-y). Downward revisions to Q410 and Q111 of 0.3 and 0.2 ppts each, lead to the lower than expected year-ended figure.

- Across industries, the results were clearly driven by the Rugby World Cup (RWC). Manufacturing was up 2.5% in the quarter, primarily from food, beverage, and tobacco manufacturing while retail, accommodation and restaurants rose 2.5%. Together these added 0.5 ppts to the 0.8% quarterly GDP growth figure. In contrast, declines occurred in 6 of the 11 industry classifications with construction (-2.2% q-o-q) now at its lowest quarterly level since June quarter 2002. Over the year, the numbers looked more encouraging, with solid growth across most industries. The only sector that registered noticeable falls was the construction industry, down -9.3% y-o-y.

- The expenditure measure showed solid growth in household consumption, up +1.5% y-o-y; the largest rise since March quarter 2007. Weakness was fairly concentrated in fixed asset investment. Housing construction was down -1.8% in the quarter and follows a -6.9% decline in the June quarter, whereas business investment fell -1.9% in the quarter, primarily from declines in 'other' construction (-6.5% q-o-q), non-residential building (-7.1% q-o-q) and transport equipment (-9.7% q-o-q). Over the year growth in expenditure has recovered solidly across most of the components, with the weakness very much concentrated in residential building (-15.9% y-o-y).

Implications
The solid result helps confirm that New Zealand remains on a recovery path, and was helped along by the boost from the RWC.

Hosting the RWC made a significant contribution to the result, with an extra 80,000 visitors helping to lift the retail, accommodation and restaurant sector as well as manufacturing sectors supplying food and beverages.

While the event is a one-off, looking forward there are a number of reasons to still be fairly optimistic about the outlook for growth. Business confidence appears to have stabilised at modestly positive levels suggesting the recovery is continuing even as global concerns increase; the rebuilding of Canterbury which has not yet hit full stride; and still relatively high prices for dairy and meat which will keep supporting incomes.

The main downside risk remains global developments. Falling overseas demand and weakening commodity prices would adversely impact income growth in New Zealand.

Bottom line

Growth was solid in Q3, in line with our expectations.

We still expect a solid end to growth in 2011 as the supply side of the economy bounces back after the quake and the economy is supported by rebuilding in Canterbury and still elevated commodity prices boost incomes. However, global developments present risks to the downside and could impact the speed of the recovery.

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