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Greetings, forex friends! It’s been a long time since I last rolled out an economic snapshot for New Zealand.

And since another RBNZ statement is coming our way, I thought that now would be a good time to make one,  and here it is.

Note: As with all Forex Snapshots, there is a nifty table at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. The bullet points provided highlight the underlying details and trends that give the numbers their proper context, however.


  • New Zealand’s Q4 2016 GDP grew by 0.4% quarter-on-quarter (+0.8% previous).
  • This is the weakest quarter-on-quarter growth rate in six quarters.
  • In addition, the reading is a significant miss from the RBNZ’s forecast of 1.0%.
  • Year-on-year, this translates to a 2.7% rate of expansion, which is slower than Q3’s +3.3%.
  • Moreover, this marks the weakest annual growth in four quarters.
  • Not only that, but Q4’s weak reading also marks the second quarter of weakening annual growth.
  • However, the annual percentage change for all of 2016 was 2.4%, which is still in line with the RBNZ’s forecast.
  • The RBNZ mainly focuses on the output approach for estimating GDP growth.
  • And using the output approach, the dip in the quarter-on-quarter reading was due primarily to the 1.56% slump in manufacturing output, which subtracted 0.16% from GDP growth.
  • The 0.79% fall in agricultural, forestry, and fishing output, as well as the 2.38% drop in mining production, were also major drags since each subtracted around 0.4% from GDP growth.
  • The main driver, meanwhile, was the professional, scientific, technical, administrative, and support services industry, which grew by 1.75% and added 0.18% to GDP growth.
  • Another major driver is the arts, recreation, and other services industry, which grew by 3.83% and added 0.12% to GDP growth.
  • I guess Hobbits are still very popular.
  • Yet another major driver was the construction industry, which grew by 1.82% and added about 0.11% to GDP growth.


  • New Zealand’s jobless rate jumped from 4.9% to 5.2% in Q4 2016.
  • This is the worst reading in three quarters.
  • Also, the reading worsened despite printing a net gain of 19K jobs.
  • On a more upbeat note, the labor force participation rate in New Zealand rose to an all-time high of 70.5%, which is great.
  • Just as great is the fact that this marks the fourth consecutive quarter of ever-better readings.
  • Even so, the number of unemployed people climbed from 128K to 139K, so New Zealand’s economy wasn’t exactly able to absorb the influx of people who decided to join or rejoin the labor force.
  • As for wage growth, the labor cost index for all industries printed another 0.4% quarter-on-quarter increase.
  • The labor cost index has been rising at a steady 0.4% pace for six consecutive quarters already.
  • Year-on-year this translates to another 1.6% rate of increase.
  • In terms of trend, there’s not much, since the labor cost index has been growing between 1.5% and 1.6% since Q2 2015.


  • Quarter-on-quarter headline Q4 2016 CPI rose at a faster clip, coming in at +0.4%, a tick higher than Q3’s +0.3%.
  • Annual headline CPI. meanwhile, came in at +1.3%, which is the best reading in 10 quarters.
  • The main driver for the quarter-on-quarter reading is the transportation component, thanks especially to the 4.1% surge in petrol prices.
  • The large positive contribution by the transportation component was partially offset by the drop in food price, with the 15% slump in vegetable prices being the biggest drag.
  • Another thing worth mentioning is that this is the price if tradables rose by 0.3% in Q4 2016.
  • This is the first increase since Q4 2010.
  • As for the surge in the year-on-year reading, that was mainly to higher housing-related prices.
  • The biggest driver was the 6.5% surge in prices for the purchase of newly built houses (excluding land), which happens to be the best reading since Q3 2005.
  • Sadly, tradables were still a drag on a year-on-year basis, dipping by 0.1% in Q4 2016.
  • The Kiwi’s relative strength is therefore still likely a problem.
  • Looking at PPI, wholesalers paid more to producers in Q4 2016, with PPI output climbing by 1.5%.
  • This is the fastest increase since Q3 2013.
  • The surge was due to higher prices received by dairy product manufacturers (+14%) and dairy cattle farmers (+0.13%).
  • Year-on-year, PPI output climbed by 2.5%, which is the best reading since Q2 2014.
  • This will probably continue to give CPI a boost, assuming wholesalers and then retailers will pass on their costs to consumers.

Business Conditions & Sentiment

  • BusinessNZ’s performance of manufacturing index (PMI) jumped from 52.2 to a five-month high of 55.2 in January.
  • The jump was thanks to a pick-up in both output (56.8 vs. 51.7 previous) and new orders (57.2 vs. 53.1).
  • PMI has been expanding (above the 50.0 stagnation mark) since October 2012.
  • Meanwhile, BusinessNZ’s performance of services index (PSI) improved from 58.5 yo 59.5.
  • This is the best reading in 16 months.
  • Business activity in the service sector slowed down a bit (60.8 vs. 63.4 previous), but this was offset by higher new orders (64.3 vs. 61.4 previous) and inventory levels (57.4 vs. 52.9 previous).
  • Looking forward, ANZ’s business confidence index fell from 21.7 to a five-month low of 16.6 in February.
  • This means that a net of 16.6% of businesses is still optimistic for the year ahead.
  • The poorer reading in February was attributed to weaker sentiment in the construction and agriculture sectors.
  • These were partially offset by improved sentiment in retailing.
  • Other components worth noting is that investment intentions fell from, 25.2 to 22.3, which is still the second-best reading in nearly two years.
  • Export intentions also weakened a bit from 23.4 to 20.6.
  • Inflation expectations rose from 1.60% to 1.73%, which could be a good sign for CPI.
  • Also, more firms are also beginning to expect a rate hike from the RBNZ (68.6% vs. 54.0% previous).


  • The number of building permits issued in New Zealand rose by 0.8% to 2,234 in January.
  • This is the first rise after four months of declines.
  • Sadly, if residential building permits are stripped, then the number of building permits actually slumped by 5%.
  • Median house prices rose by 0.3% in February, which is a tick higher than January’s +0.2%.
  • Fluctuations in housing prices have been relatively stable since November 2016, fluctuating within the -0.2 to +0.4%.


  • New Zealand’s seasonally unadjusted trade deficit widened from $36.22 million to $284.72 million during the January period.
  • That’s in Kiwi dollars by the way.
  • The larger trade gap was due to exports plunging by 10.8% after surging by 13.2% previously.
  • This was partially offset by the 5.1% decline in imports, which marks the fourth consecutive month of falling import levels.
  • On a slightly more upbeat note, exports saw a slight 0.3% increase on a year-on-year basis.
  • Going back to the monthly reading, most export components took hits.
  • And the Kiwi’s relative strength likely didn’t give exporters a break since the Kiwi’s trade-weighted index (TWI) stood at 78.55 in January and even worsened to 78.78 in February.
  • Fortunately, the TWI eased to 76.14 as of March 17.
  • And for reference, the RBNZ was expecting the TWI to worsen further to 79.0.

New Zealand's Economy: Growth

New Zealand's Economy: EmploymentNew Zealand's Economy: Inflation

New Zealand's Economy: Business Conditions & Sentiment

New Zealand's Economy: HousingNew Zealand's Economy: Trade

Putting it all together

New Zealand’s economy took a hit in Q4 2016, with both quarter-on-quarter and year-on-year readings at multi-quarter lows.

Worse, the quarter-on-quarter reading of 0.4% is way off from the RBNZ’s forecast of 1.0%.

However, the annual percentage change for 2016 came in at 2.4%, which is in line with the RBNZ’s own projections, so kind of a mixed picture from the RBNZ’s perspective.

February RBNZ Statement Forecasts

Looking forward, things look bad for Q1 2017 since the trade deficit widened in January, thanks to the large slump in exports, with many export components taking hits to boot.

And while there are no official updated economic reports for consumer spending yet, it looks like inflation is beginning to catch up to wage growth.

That’s obviously bad but just as bad is that export intentions by businesses are falling. Businesses remain optimistic, though, apparently because they expect domestic demand to compensate.

However, domestic demand ain’t likely to pick up quickly if inflation overtakes wage growth.

And that’s probably why the percentage of businesses who are expecting the RBNZ to hike rose from 54.0% to 68.6%, according to ANZ’s business survey, despite Wheeler’s statement that the market’s expectations for a rate hike are “a bit ahead” during the February RBNZ statement.

Anyhow, CPI is already within the RBNZ’s forecasts, but the year-on-year reading is still some distance from the RBNZ’s 2.0% target, so the RBNZ may not be ready to become hawkish yet.

Things are looking good for CPI, though, since PPI output has been surging. And business surveys show that businesses are expecting CPI to rise further, as they pass on their higher costs to consumers.

The Kiwi’s TWI, meanwhile, is already below the RBNZ’s forecast of 79.0 for March, so RBNZ Guv’nah Wheeler is probably crying tears of joy because of that.

But with imports falling, the recent fall in the TWI likely won’t have as strong of an impact on tradables inflation. Also, it remains to be seen if Kiwi’s recent slide will allow exports to recover.