New Zealand's growth beats expectations

Source: Dukascopy Bank SA
"The outlook remains for continued moderate economic growth... forecast growth averaging around three per cent over calendar 2016 and 2017"
- Bill English, New Zealand's Finance Minister

New Zealand's economic growth overshot expectations in the final quarter of 2015 despite a slowdown in the nation's multi-billion dollar dairy industry. According to Statistics New Zealand, the country's gross domestic product increased 0.9% in the three months to December 2015, supported by the services sector, exceeding economists' forecast for a 0.7% rise. Business services were the main catalyst of the robust rise in production last quarter, edging 1.5%, while construction surged 2.5%. Retail trade and accommodation also increased last quarter, up 1.7% amid record number of tourists coming to New Zealand. Agriculture, however, was the main drag on the economy in the reported period, with production falling 1.7% due to lower beef and sheep output. Overall growth last year slowed from 4.1% in 2014 to 2.3%. Yet, the RBNZ raised its forecast for annual growth through March 2016 to 2.6% from the 2.4% pace it estimated three months earlier. The central bank predicts growth to accelerate to 3% by March 2017.

While the RBNZ's will remained concerned over inflation expectations, solid economic activity means spare capacity in the economy may be lower than the  central bank had estimated, implying inflationary pressures could be building. Whether the RBNZ sees a chance for inflation to return to within the 1-3% target band at a sooner date than its recent forecasts suggest, will be vital to the RBNZ's decision to cut the OCR again.


© Dukascopy Bank SA

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