September 14, 2016 05:45 CDT

Consensus Actual Previous Revised
Q/Q percent change 1.1% 0.9% 0.7% 0.9%
Y/Y percent change 3.6% 3.6% 2.8% 3.0%

New Zealand's economy posted steady and solid growth in the three months to June, with GDP increasing 0.9 percent in the quarter. This was somewhat below the consensus forecast of 1.1 percent, but unchanged from the 0.9 percent growth recorded in the previous two quarters. In year-on-year terms, however, growth accelerated from a revised 3.0 percent (previously 2.8 percent) in the three months to March to 3.6 percent in the three months to June, the fastest pace since the end of 2014. A rebound in exports and stronger household spending were the main factors supporting growth this quarter.

This ongoing strength in GDP growth was largely anticipated after solid monthly data in recent weeks and will unlikely have a major impact on the near-term policy outlook. Despite the relatively robust domestic economy, inflation pressures have been subdued, providing scope for the Reserve Bank of New Zealand to cut policy rates again last month. Officials remain concerned about the impact of recent currency strength and have indicated that more cuts to policy rates will likely be needed to return inflation to target.

On an industry basis, GDP growth in the three months to June was primarily driven by construction, up 5.0 percent on the quarter, with rental, hiring and real estate services also making a solid contribution to headline growth. Other industries made either a modest positive or zero contribution to headline growth.

In expenditure terms, GDP rose 1.2 percent in the three months to June, compared with 0.7 percent in the previous quarter. This reflected a strong pick-up in the growth of private consumption spending, up 1.9 percent in the quarter, compared with 0.5 percent in the previous quarter. Government and investment spending also made solid contributions to growth.

Exports bounced back sharply after falling in each of the two previous quarters, with growth increasing from minus 0.4 percent in the three months to March to 4.0 percent in the three months to June. Officials noted that this is the strongest quarterly growth in nearly 20 years, driven by strong demand for dairy products, meat and fruit. Growth in imports also picked up in the quarter from 0.7 percent to 2.6 percent.

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.