Growth data hardly political hay
Bank economists say Thursday’s June quarter GDP figure unlikely to be fodder for general election aspirants
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.
Lions fans contributed to strong tourism inflows in June.