New Zealand Economic Growth Accelerated in Third Quarter

(Bloomberg) -- New Zealand’s economy grew at a faster pace in the third quarter, suggesting its slowdown is over and the central bank may not have to keep cutting interest rates.

  • Gross domestic product rose 2.3% from a year earlier, picking up from 2.1% in the second quarter and matching economists’ forecasts
  • GDP climbed 0.7% from the previous three-month period, Statistics New Zealand said Thursday in Wellington, beating economists’ 0.5% estimate
  • However, second-quarter growth was revised to 0.1% from 0.5% after the statistics agency updated the series

Bets on further rate cuts have been falling as improving business confidence and rising house prices add to signs the economy is at or near a turning point. The Reserve Bank slashed its official cash rate to a record-low 1% this year and the government last week announced a NZ$12 billion ($8 billion) infrastructure investment program that may further boost activity in 2020, an election year.

“The slightly stronger GDP result, along with the recent pick-up in business confidence, will likely come as some relief to the RBNZ and result in the RBNZ’s OCR risk assessment becoming more balanced,” said Jane Turner, senior economist at ASB Bank in Auckland. “Nonetheless, we continue to expect the RBNZ will cut the OCR once more over 2020, in large part due to tightening credit conditions creating headwinds to a recovery in GDP growth over 2020.”

New Zealand Economic Growth Accelerated in Third Quarter

The kiwi dollar spiked after the report before retracing to be little changed. It bought 65.83 U.S. cents at 11.15 a.m. in Wellington. The chance of a rate cut at the next RBNZ review in February is less than 8%, according to swaps data.

Most economists expect the central bank will cut interest rates once more in 2020 to 0.75%, according to a Bloomberg survey.

Last month, the RBNZ unexpectedly left rates unchanged, saying there are signs the domestic economy will stop slowing and that inflation will pick up. Some analysts reduced their projections for multiple rate cuts after the central bank’s new bank capital requirements, announced Dec. 5, weren’t as onerous as feared.

Revisions to the data history show a stronger economy in 2018, with annual growth of 3.3% in the fourth quarter of 2018 compared with 2.4% previously reported. The new data shows the economy expanded just 0.5% in the first half of 2019.

Third-quarter growth was faster than the 0.3% the RBNZ projected in its November monetary policy statement. Most economists raised their forecasts in recent weeks as reports showed a stronger lift in retail sales and manufacturing output.

Other Details

  • Output from farming, forestry and fishing increased, offset by a drop in mining production
  • Manufacturing and construction expanded after contracting in the second quarter
  • Investment was unchanged from the second quarter, with purchases of plant and machinery falling for the first time in three years; residential building also slowed
  • Household spending rose at a faster pace, led by purchases of electronic goods
  • GDP per capita grew 0.4% from the second quarter, when it fell 0.3%

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