Tag Archives: Westpac

Glimpse of NZ economic growth, hold firm

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The latest figures from Statistics NZ show a glimpse of improvement in economic activity, with a rise in gross domestic product (GDP) of 1.1 percent in the first three months of 2012, helped in part by primary food manufacturing, including meat. However, economists say it won’t necessarily result in a cut to New Zealand’s OCR anytime soon and the NZ government is intending to continue on its current course.

Compared with the March 2011 quarter, economic activity in the March 2012 quarter was up 2.4 percent. For the year ended March 2012, economic activity was up 1.7 percent compared with the year ended March 2011.

The main contributors to the increase were: manufacturing (1.8 percent), primarily primary food manufacturing and metal product manufacturing;agriculture (up 2.3 percent) mainly driven by an increase in milk production; and business services (up two percent), which include professional, scientific, technical, administrative and support services.

“Continued good growing conditions have been a major factor in the growth this quarter and it is reflected in both the milk production in agriculture and in meat and dairy manufacturing,” says Statistics NZ’s national accounts manager Rachael Milicich.

The expenditure measure of GDP was up 0.8 percent in the March 2012 quarter, due mainly to investment in fixed assets, a $416 million build up in inventories as supplies of goods produced exceeded demand and a small increase in the volume of spending by NZ households.

Picking up the pace, “right on cue”

Westpac economists say the bottom line is that the pace of growth is picking up in 2012 “right on cue after a prolonged recession an the disruption of several earthquakes.” Senior economist Michael Gordon comments, however: “The composition of growth is likely to change in coming quarters, as exports slow and reconstruction activity picks up, but we are on track for an acceleration in overall activity this year.”

He says interest rate markets are now pointing to a one-third chance of an OCR cut later this year.  “We broadly agree with this pricing, although we don’t think today’s figures really shifted the odds much – the Reserve Bank made it clear in its June Monetary Policy Statement that the case for cutting rates depends on a nasty turn of events in Europe.”

While the figures represent a major upside surprise to RBNZ’s forecast of 0.4 percent growth, Westpac thinks that today’s result will not prompt the RBNZ into raising interest rates any sooner than it was already intending.

Government holding course

The government is maintaining its firm hand on the tiller. While the economy grew more strongly than expected in the quarter “despite ongoing economic and financial uncertainty in other parts of the world,” Finance Minister Bill English says: “What’s important for the Government is taking a long-term view of building New Zealand’s competitiveness and productivity, which will help us deal with headwinds from the uncertain global environment. That’s the focus of our economic plan.”

Export meat price fall confirmed, but temporary

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A fall in merchandise export prices for meat products has been confirmed by Statistics New Zealand in its latest figures comparing the March 2012 quarter against December 2011. However, this is expected by some to be temporary and export prices should improve later this year.

Overall, merchandise export prices fell by 3.8 percent in the same quarter, reflecting a 5.5 percent appreciation of the New Zealand dollar (according to the Reserve Bank’s trade weighted average). Amongst the falls for major commodity groups, prices for meat products (especially lamb), which accounted for 12 percent of exports, were down by 3.6 percent in the quarter, while other price falls were recorded for dairy (-5.6 percent) and forestry (-4.2 percent) products.

New Zealand’s merchandise terms of trade (the ratio of export prices to import prices) fell by 2.3 percent in the March 2012 quarter when compared with December 2011 – the third consecutive quarterly decrease since the terms of trade peaked in the June 2011 quarter, Statistics NZ says.

Looking at the wider market implications, Westpac’s senior economist Anne Boniface says the  data broadly confirms Westpac’s understanding of the NZ economy and on its own won’t change the outlook for the Reserve Bank. “Nonetheless, export prospects are certainly dimming this year. But while acknowledging the near–term weakness in commodity prices and its impact on the NZ economy, we must keep the recent moves in perspective – the terms of trade remains 10 percent above its average levels of the last decade,” she says, adding that current weakness is expected to be cyclical rather than structural. “By the final quarter of this year, stimulatory policies by authorities in China should be starting to gain traction, boosting growth and demand for commodities. Consequently, we expect to see commodity prices stabilise and start to improve.”

Boniface remains firmly optimistic about prospects for New Zealand export prices over a longer horizon, she says.