New Zealand's Sluggish Growth Leaves Door Open for RBNZ Rate Cut
New Zealand Annual Economic Growth Holds at Five-Year Low
(Bloomberg) -- New Zealand’s economic growth held at a five-year low in the first quarter, leaving the door open for the central bank to cut interest rates again.
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The Reserve Bank of New Zealand cut interest rates to a record-low 1.5% in May, betting that extra stimulus will lift economic activity later this year and help get inflation back to its 2% target while ensuring that employment growth doesn’t falter. The central bank signaled further easing is possible, and most economists tip at least one more rate cut before the end of 2019.
“Strong construction activity provided a boost to an otherwise soft quarter for the economy,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “The weakness within the services sector and household spending will be particularly concerning for the RBNZ going forward. We expect the RBNZ to cut the OCR again in August.”
The kiwi dollar rose after annual GDP growth came in slightly higher than economists expected. It bought 65.54 U.S. cents at 11:53 a.m. in Wellington from 65.35 cents immediately before the release. Still, traders see an 84% chance of a rate cut by August.
Quarterly growth was faster than the 0.4% projected by the RBNZ in its May policy statement and led by a jump in construction -- which increased the most since the third quarter of 2017 as non-residential building increased, the statistics agency said. The central bank projects annual GDP growth will slow to 2% by mid-2019 but then accelerate to more than 3% by early 2020.
Other Details
- Service industries growth was the slowest since 2012 led lower by a drop in visitor arrivals and fewer property sales
- Output from farming and forestry fell; manufacturing was led higher by food and beverage production
- Household spending rose at a slower pace; investment picked up led by commercial building
- Exports rose the most since 2014 led by dairy, meat shipments
- GDP per capita grew 0.1% from the fourth quarter
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net
To contact the editors responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net, Chris Bourke
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