New Zealand: Economy picks up steam in Q3
December 22, 2016
The New Zealand economy picked up steam in Q3 despite growing external headwinds and uncertainty. Economic growth accelerated from a revised 0.7% seasonally-adjusted quarter-on-quarter expansion observed in Q2 (Q2: +0.9% quarter-on-quarter) to 1.1%, surprising analysts who had expected a softer 0.9% expansion. The strong print underscores solid domestic demand and strength in the tourism and construction sector.
Growth was underpinned by an acceleration in the tertiary sector, which more than made up for a slowdown in the secondary sector and an only soft expansion in the primary sector. The service sector picked up steam and expanded at the fastest pace in six years (Q2: 0.7% qoq; Q3: 1.1% qoq), supported by a booming tourism industry. Growing tourism boosted strong growth in transportation, retail trade and accommodation, and arts, recreation and other services. The primary sector grew 0.1% in the July-to-September period (Q2: +0.1% qoq), driven by a rebound in mining output, which more than offset a mild contraction in agriculture. Growth in the secondary sector slowed somewhat, though construction and manufacturing still expanded solidly. All the sub-indices of construction grew, in a clear indication of the sector’s health. Overall, 13 of the 16 sectors of the economy grew.
On an expenditure basis, GDP growth accelerated from a 1.2% quarter-on-quarter increase in Q2 to 1.4% in Q3. The acceleration was driven by solid private consumption, buttressed by a large inflow of tourists, a strong labor market, ease of access to credit, and population growth on the back of net migration into the country. Fixed investment grew 1.4% qoq, supported by a booming construction and housing industry. The external sector, on the other hand, was a drag on GDP. Its contribution to growth swung from plus 0.2 percentage points in Q2 to minus 0.6 percentage points in Q3, an over two-year low. The print reflects a contraction in exports as overseas demand for New Zealand commodities remains weak while imports of goods and services expanded on solid private consumption.
The country is set to have been among the best performing industrialized economies in 2016 and to remain so in 2017. Strong labor market data, a strong consumer confidence reading from Q4, healthy population growth and an accommodative monetary policy by the Central Bank will keep the economy on a solid footing. Prices for New Zealand commodities, particularly milk, increased in Q4 2016 and are set to rise further. This is expected to give some respite to the beleaguered sector and propel a recovery of exports in 2017.