Source: Radio New Zealand
NZ’s GDP rose about 0.3 percent in the three months to December, compared to the Reserve Bank’s February forecast of 0.5 percent. RNZ
- Economic growth estimated at 0.3 percent in three months ended December, annual growth 1.5 percent
- Primary sector, tourism industries the best; manufacturing flat, construction weak.
- Figures are expected to confirm economy was turning corner
- Historic numbers have been rendered almost irrelevant by Middle East conflict
- The conflict at best will slow recovery, at worst derail it
- RBNZ faces a dilemma – support growth or fight inflation
The economy is expected to have shown improving growth at the end of last year, in a set of historic numbers rendered almost irrelevant by the Middle East conflict.
Economists expect gross domestic product (GDP) – a broad measure of economic growth – rose around 0.3 percent in the three months ended December, compared to the Reserve Bank’s February forecast of 0.5 percent. The annual rate is forecast to have risen to 1.5 percent.
Kiwibank economist Sabrina Delgado said the numbers would be stale.
“To be honest, it’s probably going to be one of the most dated GDP report cards in recent memory.”
She said the growth numbers were always delayed, but the escalating conflict in the Middle East, and the impact of rising prices, supply chain disruptions and the like had changed the picture entirely.
For the record, the numbers are expected to show the primary sector and tourism related industries doing well, manufacturing broadly flat, and construction weak.
“It was another quarter of strong visitor arrivals with plenty of indicators pointing to a lift in transport, arts and recreation, and retail trade and accommodation,” Delgado said.
That was then, this is now
ASB senior economist Kim Mundy said the data would confirm the economic direction of travel, although growth was not as vigorous as the previous quarter’s 1.1 percent. The per capita growth measure was expected to be positive for the second quarter in a row, reflecting better household finances.
But the conflict has changed that.
“The economic consequences for New Zealand from the war depend on how long it lasts, but so far, the risks to economic growth are firmly skewed to the downside,” she said.
The risks were clearly being driven by the surge in oil prices, which have already driven pump prices and would flow through to the price of other goods and services, giving an inevitable lift to inflation.
Treasury has forecast a worst case scenario of inflation hitting 3.7 percent this year if the conflict persists, a forecast some see as too conservative.
The inflation spike and softening economic performance give the Reserve Bank (RBNZ) a dilemma – to tackle inflation, implying interest rises or to support the economy with “accommodative” interest rates.
Economists do not expect the RBNZ to have any kneekerk rate reaction to the price spikes at its 8 April statement, and ANZ senior economist Matthew Gault said a softish GDP number might have the central bank seeing more slack in the economy, and therefore more capacity to absorb price rises.
“However, we wouldn’t want to overplay this given the uncertain outlook, and also recalling that annual inflation at 3.1 percent isn’t coming from an entirely comfortable starting point.”
Delgado said it was not just the inflation spike, but the impact on sentiment and demand.
“It’s yet another wave of uncertainty for Kiwi households and businesses. And there is a real risk that it derails our recovery in the same way Trump’s liberation day tariffs did last year.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
