Growth data hardly po­lit­i­cal hay

Bank econ­o­mists say Thurs­day’s June quar­ter GDP fig­ure un­likely to be fod­der for gen­eral elec­tion as­pi­rants

The New Zealand Herald - - BUSINESS - Jamie Gray

This week’s growth data looks un­likely to pro­vide any last­minute fod­der for po­lit­i­cal par­ties in the leadup to Saturday’s gen­eral elec­tion, with econ­o­mists ex­pect­ing the re­lease to show the econ­omy put in a fair-to-mid­dling per­for­mance over the June quar­ter.

Mar­ket ex­pec­ta­tions are for a 0.8 per cent in­crease in real gross do­mes­tic prod­uct growth over the quar­ter, up from a 0.5 per cent in­crease in the March quar­ter, re­flect­ing a mild re­bound from early in the year and late last year.

Satish Ranch­hod, se­nior econ­o­mist at West­pac, said the data was likely to show a tem­po­rary re­bound.

“We had some soft­ness ear­lier in the year, re­lated to agri­cul­tural pro­duc­tion, and we had strong tourism in­flows in June,” Ranch­hod said.

“We think that this is likely to be the peak and that GDP growth will start to slow in the back half of the year,” he said.

ASB Bank’s forecast of 0.6 per cent over the quar­ter, and 2.4 per cent an­nual growth, is at the low end of mar­ket fore­casts.

“Ho-hum is prob­a­bly the best way to char­ac­terise it,” ASB econ­o­mist Mark Smith said.

“The ma­jor take­out from our point of view is that, de­spite what ap­pears to be a num­ber of sup­ports for the econ­omy — terms of trade at near record highs, very low in­ter­est rates, and very strong lev­els of busi­ness and house­hold con­fi­dence — things are not re­ally crack­ing on from there,” he said.

Smith added that there ap­peared to be a dis­con­nect be­tween high lev­els of busi­ness and con­sumer con­fi­dence and what was ac­tu­ally hap­pen­ing in the econ­omy.

If ASB’s forecast proves to be cor­rect, it will mark the third con­sec­u­tive out­turn in which growth has been sub-trend and the third con­sec­u­tive un­der­shoot of the Re­serve Bank’s fore­casts.

Econ­o­mists said Thurs­day’s GDP re­lease was un­likely to change the Re­serve Bank’s view — out­lined at last month’s mon­e­tary pol­icy state­ment — that mon­e­tary pol­icy would re­main ac­com­moda­tive “for a con­sid­er­able pe­riod”. The bank’s of­fi­cial cash rate sits at 1.75 per cent, where it has been since Novem­ber last year.

“A slug­gish GDP growth back­drop and the po­ten­tial for elec­tion-re­lated volatil­ity to im­pact forth­com­ing data read­ings sug­gest a pro­longed pe­riod on the side­lines for the of­fi­cial cash rate,” ASB said.

“De­spite a strong de­mand back­drop, how­ever, the econ­omy may be run­ning into ca­pac­ity con­straints and the eco­nomic ex­pan­sion re­mains patchy.”

ASB said an­nual and an­nual av­er­age growth was ex­pected to slow to 18-month and 12-month lows, re­spec­tively.

Among the other banks, ANZ ex­pects a 0.7 per cent in­crease in GDP over the June quar­ter, with the pri­mary and ser­vices sec­tors mak­ing pos­i­tive con­tri­bu­tions.

“How­ever, we’d see this as some- what of a ‘mid­dling’ re­sult as it is only a mod­est re­bound from soft late-2016, early-2017 growth,” ANZ said in a com­men­tary. ANZ said GDP around its ex­pec­ta­tion — or a lit­tle stronger — while rep­re­sent­ing a nice bounce from the pre­vi­ous six months, would still be some­what dis­ap­point­ing. “Given the tem­po­rary fac­tors that had weighed on growth over Q4 and Q1, a case for a larger re­bound could have been made.” ANZ said it was dif­fi­cult to put “pos­i­tive spin” on an­nual per capita growth sit­ting a touch above zero. “It sug­gests that some of the chal­lenges associated with ca­pac­ity and skilled labour pres­sures, the turn in the credit cy­cle, and the weaker hous­ing mar­ket are act­ing as clear growth head­winds,” the bank said. GDP per capita shrank 0.1 per cent in the March quar­ter, its sec­ond quar­terly con­trac­tion af­ter a 0.2 per cent de­cline in the De­cem­ber quar­ter. Per capita growth has been held back as New Zealand’s pop­u­la­tion has lifted on the back of record net mi­gra­tion, which has sup­ported ag­gre­gate gains. The lat­est data from Sta­tis­tics New Zealand showed an­nual net mi­gra­tion reached a record 72,400 in the year to July, up 3400 on the same pe­riod a year ear­lier.

Pic­ture / Brett Phibbs

Lions fans contributed to strong tourism in­flows in June.

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