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The RBNZ will be announcing its monetary policy decision this coming Wednesday. And if you’re wondering how New Zealand’s economy is faring lately, then today’s Economic Snapshot will help you out.


  • New Zealand printed a 0.5% quarterly rate of expansion in Q1 2017 GDP.
  • This is slower than the expected +0.7% increase, but is faster than Q4 2016’s +0.4%.
  • Even so, Q1’s reading is well below the RBNZ’s forecast of +0.9%, which is a real bummer.
  • Year-on-year, New Zealand’s GDP grew by 2.5%, which is slower than Q4 2016’s +2.7%.
  • In fact, this marks the third consecutive quarter of ever lower annual growth.
  • Moreover, Q1’s annual rate of expansion is the slowest in five quarters.
  • The RBNZ mainly focuses on the output approach for estimating GDP growth.
  • And using the output approach, 11 of the 16 major industries actually printed an increase.
  • Among the 11, the main driver for quarterly growth was the 2.8% increase in output from the agriculture, forestry, and fishing industry, which added 0.2% to quarter-on-quarter growth.
  • Other major contributors are the 1.0% increase in manufacturing output, 1.4% surge in wholesale trade, 1.8% growth in retail trade, and the 1.6% increase in healthcare, which all contributed 0.1% to GDP apiece.
  • The main drags, meanwhile, came from the 2.1% drop in construction output and 2.0% slump in transportation and warehousing output, which subtracted 0.1% from GDP growth each.


  • New Zealand’s jobless rate dropped back to 4.9% in Q1 2017 after deteriorating to 5.2% in Q4 2016.
  • Even better, the jobless rate rose even as the labor force participation rate rose to a new all time high of 70.6%
  • Also, jobs growth accelerated by Q1, printing a net increase of 30K (18K previous).
  • On a slightly downbeat note, growth in full-time jobs slowed in Q1 2017 (+13K vs. +29K previous).
  • This marks the second quarter of net increases in full-time jobs at least.
  • 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 to say, since the labor cost index has been growing between 1.5% and 1.6% since Q2 2015.


  • Headline rose jumped by 1.0% quarter-on-quarter, which is the best reading since Q2 2011.
  • The year-on-year reading, meanwhile, came in at 2.2%, which is the fastest annual increase since Q3 2011.
  • This is also the first time that annual inflation rose above the 2.0% mark since Q3 2011.
  • The main driver for the quarter-on-quarter reading was the 2.2% surge in food prices.
  • A tax on tobacco products also caused the alcoholic beverages and tobacco component to print a 4.0% increase.
  • Also, the price of tradables rose by a further 0.8% in Q4 2016, which is a good thing since low tradables inflation has been the reason why New Zealand’s inflation was subdued in the recent past.
  • As for the surge in the year-on-year reading, that was still due primarily to higher housing-related prices, with housing and household utilities up by 3.3%.
  • Even better, tradables finally printed a 1.6% year-on-year increase.
  • Looking at PPI, wholesalers paid slightly less to producers in Q1 since PPI output only increased by 1.4%, which is a tick lower than the previous reading.
  • Year-on-year, PPI output surged by 4.5%, which is the best reading since Q3 2013.
  • This also marks the second month of ever better PPI readings.
  • 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 services index (PSI) dropped by 6.0 points to 52.8 in April.
  • This is the lowest reading since December 2012.
  • The deterioration was broad-based, with the activity/sales index down from 60.9 to 52.3 and the new orders/business index down from 65.8 to 55.6.
  • Only the employment index saw an improvement (53.0 vs. 55.8 previous).
  • According to BusinessNZ, “it was fairly evident that school holidays, public holidays and severe weather conditions combined to create a number of impediments to expansion during April.”
  • Meanwhile, BusinessNZ’s performance of manufacturing index (PMI) rose to 58.5 in May after easing to 56.9 in April.
  • This is the best reading since January 2016.
  • The improvement in the manufacturing sector was broad-based since only the new orders component posted a poorer reading by easing from 62.0 to 61.2.
  • PMI has been expanding (above the 50.0 stagnation mark) since October 2012.
  • As for, ANZ’s business confidence index, it rebounded to 14.9 in May after dipping to 11.0 in April.
  • This means that a net of 14.9% of businesses are still optimistic for the year ahead.
  • The improvement in business sentiment was not broad-based, however, since “Sentiment lifted in manufacturing, retail and agriculture, was unchanged in the service sector, and fell in construction.”
  • Looking at the sub-components, inflation expectations rose from 1.83% to 2.00%, which could be a good sign for CPI.
  • Also, export intentions rose from 24.2 to 31.3.
  • However, less firms are expecting a rate hike from the RBNZ (61.4% vs. 64.3% previous), although a majority still obviously do.


  • The number of building permits issued in New Zealand fell by 7.6% to 2,428 in April.
  • This marks the second straight month of declines.
  • And while this may be a bad sign for building investments and, by extension, GDP growth, it’s actually kinda good in a way since it reduces the odds of a housing bubble.
  • Median house prices, meanwhile, rose by 0.1% in May.
  • This marks the second consecutive month of weaker home prices.
  • Also, this is the weakest monthly increase in home prices in six months.


  • New Zealand’s seasonally unadjusted trade surplus widened from $277 million to $578 million between March and April.
  • That’s in Kiwi dollars by the way.
  • This marks the second month of surplus after eight straight months of deficits.
  • Also, the trade surplus in April is the biggest since February 2013.
  • The increase in exports was actually softer in April (3.2% vs. 15.2% previous).
  • However, imports fell by 3.6% after rising by 6.7% previously, so the rise in exports got amplified.
  • The Kiwi’s recent weakness likely gave exporters a much-needed break and will probably continue doing so since the Kiwi’s trade-weighted index (TWI) stood at 75.50 in May.
  • This marks the third straight month of lower readings for the TWI, with the reading for May being the lowest since October 2016.
  • However, the Kiwi recovered in June, with the TWI at 77.74 as of June 16.
  • Also, the RBNZ is forecasting that the TWI will come in at 76.0 by the end of the June quarter.

Putting it all together

New Zealand’s economic growth weakened in Q4 2016 but slightly accelerated in Q1 2017 by coming in at +0.5%.

Unfortunately, this is way below the RBNZ’s forecast of +0.9%. Moreover, the annual reading of +2.5% is the slowest annual rate of expansion in five quarters. Not only that, the +2.5% reading is below the RBNZ’s forecast of +2.9%.

Growth is therefore a bit disappointing from the RBNZ’s point of view. The details do have some positive points, though, since growth across industries was broad-based, with 11 out of 16 industries reporting growth.

It just so happens that the construction industry suffered some weakness. But then again, a weaker construction industry is also kinda good since it eases fears of a housing bubble.

Also, the RBNZ already foresaw this when it noted during the May RBNZ statement that it downgraded its projections for gross fixed capital formation mainly because “banks’ appetite for lending for residential property development appears to have reduced.” As a result, some construction companies have reported “some increased difficulty in obtaining finance.”

However, it should also be noted that the RBNZ said the following during the May RBNZ statement (emphasis mine):

“The lower level of construction activity would have two effects: it would reduce growth in the supply of housing, and it would lead to capacity pressure developing more slowly than in the central projection. While lower housing supply would increase house price inflation, the net response in the real economy would be a lower level of inflationary pressure as a result of less capacity pressure.”

To offset weaker inflationary pressure in the scenario, the OCR would need to fall, reaching 1.3 percent by the end of 2018 and remaining below the central projection over the forecast horizon.”

So far, inflation has remained strong and housing prices have been trending lower instead of trending higher as expected, so there’s probably nothing to worry about (for now). That won’t stop the RBNZ from having a more forward-looking approach, though.

Looking forward, Q2 GDP growth is off to a good start since New Zealand’s trade surplus in April was the widest since February 2013 as exports continued to grow while imports took a hit.

The Kiwi’s TWI continued to trend lower in May, which should help out exporters and survey data of businesses pointed to higher exports intentions in May.

It remains to be seen if the TWI’s rise in June will hurt exports, though. Also, the TWI as of June 16, 2017 was at a lofty 77.74, which is way above the RBNZ’s forecast of 76.0, so the RBNZ probably won’t be too happy about that.