December 21, 2016 03:45 CST

Consensus Actual Previous Revised
Q/Q percent change 0.9% 1.1% 0.9% 0.7%
Y/Y percent change 3.7% 3.5% 3.6% 3.4%

New Zealand's economy strengthened in the three months to September, with gross domestic product growing by 1.1 percent quarter-on-quarter, above the consensus forecast of 0.9 percent and up from the 0.7 percent growth recorded in the three months to June (revised down from 0.9 percent). GDP grew by 3.5 percent year-on-year, up slightly from 3.4 percent in the three months to June (revised down from 3.6 percent), and a little below the consensus forecast of 3.7 percent.

This pick-up in GDP growth in the three months to September was broad-based, with gains in all three of the main sectors of the economy and in thirteen of the sixteen industry categories. Activity in the services sector (around 70 percent of GDP) advanced 1.1 percent in the quarter, while activity in the goods-producing sector (around 20 percent of GDP) rose 1.3 percent. Weak farm output, however, dragged on activity in the primary sector, up just 0.1 percent on the quarter.

In expenditure terms, GDP rose 1.4 percent in the three months to September. This was largely driven by solid growth in private consumption spending, up 1.6 percent on the quarter, reflecting strong increases in spending on services and non-durable goods, particularly petrol. Investment in fixed assets also increased by 1.4 percent on the quarter. These positive contributions to GDP growth, however, were offset by a negative contribution from net exports, with exports falling 0.7 percent on the quarter and imports rising 1.2 percent. This strong increase in imports, however, was largely driven by aircraft purchases, a category that tends to be volatile.

Although today's data shows a solid pick-up in economic activity, the information it contains will be somewhat dated by the time the Reserve Bank of New Zealand holds its next policy meeting in early February. Officials then will likely focus more on inflation data for the three months to December, scheduled for publication in late January, and on whether incoming activity data shows any significant effect from recent currency depreciation and the major earthquake that hit the capital, Wellington, in November. Officials cut the policy rate by 25 basis points at their last meeting in November, noting then that they expect current policy settings will be enough to get inflation back to near the middle of their target range.

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.