Weak Growth To Keep RBNZ On Hold

Q3 GDP came in significantly lower than analyst and RBNZ projections shrinking 0.3% q/q and -0.6% y/y. Q2 was revised down 0.4pp to 0.5% q/q and 0.3pp to 1.5% y/y. While the RBNZ predicted +0.3% q/q in its November update, it did have -0.3% in August. This outcome is likely to mean that the risk of another hike, which the RBNZ threatened at its last meeting, is highly unlikely as demand is moving more in line with supply.

• The expenditure measure of GDP was weak falling 0.7% q/q but this was after a strong +0.9%. All of the main components fell with private consumption down 0.6% q/q, government spending -1.8%, GFCF -3.4% and the net export contribution -0.5pp. Residential capex fell 1.1% q/q and -6.3% y/y and so is yet to rebound given increased demand from strong migration, which the RBNZ was concerned about. Consumption is up only 0.3% on a year ago while investment is down 4.6%.

Source: MNI - Market News/Refinitiv

• Underlying consumption was probably stronger than the numbers implied as Q3’s weakness was due to durables particularly motor vehicles. Stats NZ notes that changes to fees and rebates on July 1 brought vehicle spending forward into Q2. This factor also weighed on transport investment.

Source: MNI - Market News/Refinitiv

• Inventories posted a large 2.7pp contribution to growth, but it is prone to large swings.
• Goods exports fell 4.1% q/q, due to lower food, fuel and agriculture, but services rose 8.8% because of the tourism recovery. Total imports fell 0.3% q/q to be up only 0.5% y/y, signalling soft domestic demand.
• Manufacturing drove the weakness in the production measure of GDP and softer goods exports weighed on the transport sector. Services were a bright spot with 8 of the 11 industries posting increases.
• There were changes to benchmarking and methodology in this release which resulted in backward revisions and were going to make this quarter difficult to forecast.