Wed Mar 14 16:45:00 CDT 2018

Consensus Actual Previous Revised
Q/Q percent change 0.7% 0.6% 0.6%
Y/Y percent change 3.1% 2.9% 2.7% 3.0%

New Zealand's economy recorded steady growth in the three months to December, with gross domestic product up 0.6 percent on the quarter, unchanged from the three months to September and just below the consensus forecast of 0.7 percent. GDP grew by 2.9 percent on the year in the three months to December, down slightly from revised growth of 3.0 percent in the previous quarter and also falling short of the consensus forecast of 3.1 percent. Strong growth in services and household spending offset weakness in the agricultural sector and net exports.

This stability in headline GDP growth in the three months to December reflects offsetting moves in the major sectors of the economy. The service sector expanded by 1.1 percent on the quarter, recovering from relatively weak growth of 0.6 percent in the three months to September, while the utilities sector expanded by 1.5 percent after contracting by 1.9 percent previously. The agriculture, forestry and fishing sector, however, had a second consecutive weak quarter, with output there falling by 2.4 percent in the three months to December after zero growth in the three months to September. Officials cited the impact of hot, dry weather on dairy production. Output in the manufacturing sector also fell 0.1 percent on the quarter after increasing by 0.7 percent previously, while mining output rose 1.8 percent after growth of 3.2 percent previously.

In expenditure terms, GDP rose 0.4 percent in the three months to December, down from a revised 1.0 percent in the three months to September. Household consumption spending grew 1.2 percent on the quarter, up from 1.0 percent previously, while growth in business investment spending also picked up from 0.9 percent to 3.7 percent. Net exports, however, were weaker in the three months to December, with exports growth falling from 0.8 percent to no change and imports growth picking up from 2.5 percent to 3.9 percent.

At the Reserve Bank of New Zealand 's most recent policy meeting in early February, officials noted that domestic growth moderated in the second half of 2017 but expressed confidence that supportive monetary and fiscal policy will drive a pick-up in activity in 2018. Compared with their earlier estimates, however, officials now expect growth will be weaker in the near term but stronger in the medium term, mainly reflecting a reassessment of the likely impact of the new government's economic policies. The RBNZ's next policy meeting, scheduled for next week, will be the last chaired by Acting Governor Grant Spencer, with his replacement, Adrian Orr, set to take over at the end of the month.

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.