What Will the New Zealand GDP Tide Bring In?

New Zealand’s GDP is expected to show an expansion of 0.8% for the fourth quarter of last year, four times the previously seen 0.2% growth in the third quarter. Would they be able to achieve this feat?

Well, they were able to double their pace of growth from 0.1% in the second quarter to 0.2% in the third quarter of 2009. Come Thursday, we’ll find out whether they can land a quadruple…

If the actual figure meets the consensus, it would mark New Zealand’s fastest pace of growth in almost two years. Let’s take a look at the recent economic figures to gauge whether it’ll be a hit or miss for New Zealand.

I don’t want to jinx anybody’s optimistic view on New Zealand but recent economic figures suggest that the country could fall short on the market’s growth projection. You see, around 59% of New Zealand’s total output comes from domestic consumption, which is usually gauged through the retail sales figures. And guess what? From November to December, New Zealand’s retail sales unexpectedly slipped by 0.4%. The core version of the account, which excludes vehicle sales, showed a more pronounced decline of 2.0%!

Meanwhile, New Zealand’s fourth quarter CPI also fell by 0.2%, indicating that there was not enough demand to push the prices of goods and services up. This could imply that spending and business activity failed to pick up during the period. Did shoppers take a rain check on their holiday shopping last year?

Anyway, compared to its friendly neighbor across the Tasman Sea, New Zealand isn’t looking too well either. Australia’s central bank, the RBA, has hiked interest rates all the way up to 4.0%, while the RBNZ has kept its rates steady at 2.50% for eight months now. On top of that, the bank has committed to keep rates at the level all the way to the middle of 2010.

Who could blame them? Australia has been reporting improvements in their labor market month on month on month while New Zealand’s unemployment rate rose to 7.3% – its highest level in 10 years! Furthermore, with inflationary pressures remaining subdued, it gives the RBNZ more reason NOT to raise rates. Remember, one way to combat rising inflation and preserve the value of money is to raise the borrowing costs of banks.

My take on the economic weather forecast of New Zealand?

If the data meets the consensus or comes in even better than expected, we will probably see RNBZ stick to their interest rate schedule. After all, aren’t more signs of recovery exactly what RBNZ President Alan Bollard has been waiting for?

On the other hand, what happens if GDP figures fail to impress? Could the RBNZ – gulp – even opt for an extended period of low interest rates? Hey, that’s sounds familiar… If so, the Kiwi may find itself on the short end of the stick compared to the Aussie, as investors may just keep moving their funds to the sexy potential yields that AUD┬áhas to offer.

In any case, we’ll have to see wait what this GDP report brings in. You might wanna put on some sun block just in case you get burned by the results coming out tomorrow!

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