Statistics New Zealand has released the latest GDP results and they show the New Zealand economy grew by 0.9% over the three months to June 30.
That growth was driven by strong domestic and export demand – with household spending up 1.9%, exports up 4.0% and construction up 5.0%.
Economist said the results showed the economy is growing solidly, but did not change their expectations for the Reserve Bank’s approach to the OCR.
ANZ senior economist Sharon Zollner said the GDP results were a little less than expected on weaker-than-anticipated manufacturing growth, but still a solid outturn.
The economy is strengthening and we expect strong growth over the back half of 2016, she said.
“But growth is not determining New Zealand monetary policy at the moment.
“It is all about low inflation and that’s expected to remain low courtesy of the strong NZD, despite the economy growing at an above-trend rate.”
For this reason, ANZ expect OCR cuts in November and February as the Reserve Bank responds to persistently low inflation and slipping inflation expectations.
ASB is also expecting an OCR cut in November, rather than next week.
The bank’s senior economist Jane Turner said the results showed GDP growth was robust, although slightly weaker than expected by both ASB and the market.
Due to revisions, annual growth is stronger than the Reserve Bank expected at the August Monetary Policy Statement, she said.
“We continue to expect the Reserve Bank will cut the OCR to 1.75% in November.”
Turner said strong GDP and dairy prices meant the Reserve Bank may be more reluctant to cut the OCR below 1.75% next year.
“Nonetheless, in light of continued weak inflation, and despite strong growth, we continue to see a high chance of a further cut next year should inflation indicators continue to print on the weak side.”
Westpac acting chief economist Michael Gordon said there was little in today’s GDP results to change their view on the likely timing of Reserve Bank rate cuts.
The bank has previously said they expect a further OCR cut in November to take it to 1.75%, although they think there is a risk of a further cut beyond November.
“Estimates of capacity pressure (and therefore inflation) are likely to be broadly in line with expectations following today's data,” Gordon said.
“Accordingly, there was little market reaction to today’s release.”
