New Zealand: Growth weakens in Q4 2019 on sustained destocking and cooling consumer spending
The economy expanded 0.5% in quarter-on-quarter seasonally-adjusted terms in the final quarter of 2019, below Q3’s revised 0.8% increase (previously reported: +0.7% quarter-on-quarter seasonally-adjusted). Meanwhile, on a year-on-year basis, the economy rose 1.8% in Q4 from Q3’s 2.3%, marking the weakest expansion in over seven years. The fourth quarter’s result brings full-year growth for 2019 to 2.3%, down from 2018’s 3.2% expansion and marking the softest reading since 2013.
The weaker quarter-on quarter expansion in Q4 came on the back of a downturn in domestic demand. Household spending growth slowed to 0.3% (Q3: +0.9% qoq s.a.), despite a dip in the unemployment rate as employment barely grew and households likely increased precautionary savings on downbeat economic prospects. Moreover, destocking subtracted 0.7 percentage points from growth, as companies opted to lighten their warehouses amid gloomy demand prospects. Meanwhile, fixed investment contracted 0.1%, as in the previous quarter, dragged down by low investment in transport equipment and in non-residential building. On the other hand, the increase in public spending accelerated compared to Q3 (Q4: +2.1% qoq s.a.; Q3: +1.4% qoq s.a.).
Meanwhile, the external sector strengthened. Exports of goods and services increased 1.1%, rebounding from the 2.1% drop in Q3, thanks to a healthy increase in dairy exports and in foreign sales of services. On the other hand, imports of goods and services flatlined after growing 2.2% in Q3, weighed on by shrinking domestic demand.
Economic growth is expected to wane this year. The impact of coronavirus on the tourism industry and on external demand, as well as on the domestic economy via consumer confidence, will be sizable. Moreover, economic weakness in China and Australia will further weigh on the external sector. A tight labor market and sustained wage growth together with more expansionary fiscal and monetary stances should cushion the downturn somewhat, however.