Wed Mar 18 16:45:00 CDT 2015

Consensus Actual Previous
Q/Q percent change 0.8% 0.8% 1.0%
Y/Y percent change 3.3% 3.5% 3.2%

As anticipated, fourth quarter GDP was up 0.8 percent on the quarter and a greater than anticipated 3.5 percent from the same quarter a year ago. Expectations were for a 3.3 percent increase. Among the sectors that added to growth were retail trade & accommodation which added 2.3 percent thanks to increased tourist spending. Rental, hiring, and real estate services were up 1.2 percent, thanks to increased home sales. Financial & insurance services gained 1.1 percent mainly due to increased banking activity.

On the expenditure side, GDP was up 1.1 percent on the quarter and 3.7 percent on the year. Exports of goods and services were up 6.1 percent, driven by increased spending from overseas visitors. Household consumption expenditure added 0.6 percent, due to increased spending on services and durable goods. Inventories added NZ$409 million from increased manufacturing and distribution inventories.

The Reserve Bank of New Zealand which was the first industrial country to increase interest rates in July 2014 has been carefully monitoring growth. At its meeting last week, the RBNZ said that the domestic economy remained strong. But there were are a number of factors weighing on domestic growth, including drought conditions in parts of the country, fiscal consolidation, reduced dairy incomes and the high exchange rate.

GDP data are a comprehensive measure of a New Zealand's overall production and consumption of goods and services. GDP serves as one of the primary measures of overall economic well-being. GDP calculates the total market value of goods and services produced in New Zealand within a given period after deducting the cost of goods and services used up in the process of production. Therefore, GDP excludes intermediate goods and services and considers final aggregates only. The New Zealand System of National Accounts (NZSNA) is a comprehensive accounting framework based on an international standard (System of National Accounts, 1993).

Gross domestic product (GDP) can be measured using three approaches, namely the production, income and expenditure approaches. The production measure of GDP is derived from firm level data and estimates the value added by all producing industries in the New Zealand economy. The income measure of GDP is derived from earnings data and estimates how the income earned from these producing industries is then distributed throughout the economy as returns to labor, capital and government. The expenditure measure of GDP is derived from data estimating spending on goods and services by final end users and includes consumption, investment and exports minus the value of imports.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.