MNI ANALYSIS: Q2 GDP Leaves Downside Risk To RBNZ Policy

--Slowing Biz, Consumer Spending Could Weigh On RBNZ Outlook

By Sophia Rodrigues

     SYDNEY (MNI) - New Zealand's economy outpaced expectations in Q2, but

household consumption and business investment data suggest downside risks to the

outlooks for growth and the Reserve Bank's official cash rate.

     The RBNZ will acknowledge the solid GDP outcome in the official cash rate

statement Sept 27, but will also reiterate its stance that the next rate move

could be either up or down.

     Data published earlier Thursday by Statistics New Zealand showed the

economy grew 1.0% q/q in Q2, twice as fast as the 0.5% projected by the RBNZ in

the August Monetary Policy Statement, and higher than MNI's median forecast for

0.8%. Annual growth was 2.8%, above the RBNZ's 2.3% projection.

     --BUSINESS INVESTMENT KEY

     But overall business investment fell 0.2% q/q, the first quarterly decline

since March 2016, after a rise of 0.3% in Q1 and a 4.0% gain in Q4 of last year.

Annual growth fell short of the RBNZ's projection of 6.3%.

     The RBNZ's downside scenario in the August MPS was based mainly on

declining confidence and activity outlooks in business surveys, which raised

doubts about the outlook for investment. The bank projected annual business

investment growth of 4.7% in Q3 and 1.9% in Q4. It sees the pace slowing

significantly in the first half of 2019, before rebounding to 3.1% in Q3 2019.

     Without a marked improvement in business confidence and investment

intentions in ANZ's next survey Sept. 26, a day before the RBNZ's OCR decision,

the risk to the central bank's statement remains to the downside. August's ANZ

survey dropped into negative territory (-4.7) -- rare for that series.

     --CONSUMER SET TO SLOW

     The main upside surprise in the Q2 data came from government expenditure,

up 2.2% q/q compared with a 0.5% rise in Q1. Central government expenditure

gained 2.0% q/q, the fastest pace in three quarters, while local government

spending rose 3.5%.

     The RBNZ had expected government spending to support GDP growth from the

second half of 2018, so the Q2 outcome suggests it kicked in earlier than

expected.

     Household consumption rose by 1.0% q/q after a flat Q1, close to the 0.9%

forecast by RBNZ. The y/y 3.0% rise compared with the bank's expectation of 2.9%

. The RNBZ had expected consumption to recover from a one-off decline in

transport spending, with the government's Families Package also providing

support.

     The bank forecasts household consumption to rise 1.0% q/q in Q3 before

slowing to 0.6% in Q4 and through 2021. Despite the solid Q2 GDP data, the risk

to this forecast remains to the downside given slowing house price inflation and

declining net immigration.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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