NZ: GDP growth moderates, but demand remains strong - AmpGFX

At face value the NZ GDP data in the last two quarters appear quite bearish for the NZD, rising modestly, slowing annual growth to 2.5%y/y in Q1 on the SNZ’s preferred production-based measure, and 2.0% y/y using the expenditure measure more commonly used abroad, explains the analysis team at Amplifying Global FX Capital. 

Key Quotes

“Both near the low end of the range for the last 5 years.”

“However, underlying demand in the economy remains much stronger.  Gross National Expenditure rose 4.4%y/y and private consumption rose 5.0%y/y in Q1.”

“The difference is a weak trade performance in volume terms. Exports were down 1.4%y/y in Q1 and imports rose 6.5%y/y.  Export performance should be expected to recover in coming quarters with some rebound in farm production in the quarter.”

“Nevertheless, it is an issue of concern for New Zealand policymakers that so much of its expenditure has been on imported goods.  On balance, the weaker trend in GDP is still likely to dampen enthusiasm for rate hikes in New Zealand and encourage it to call for a weaker exchange rate to promote a better balance it trade volume.”

“After the weaker than expected Q4 GDP report, the RBNZ noted that it had downgraded its measure of the output gap, a key input in the RBNZ inflation forecasts, it its May policy statement.”