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Another RBNZ statement is coming up this Wednesday, so I thought that now would be a great time to give y’all an overview of how New Zealand’s economy has been faring recently.


  • 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 outpout and 2.0% slump in transportation and warehousing output, which subtracted 0.1% from GDP growth each.
  • Using the expenditure approach, the 1.2% increase in consumer spending was the main driver for quarter-on-quarter growth on Q1.
  • The main drag, meanwhile, was trade because of the 0.4% fall in exports and the 1.3% increase in imports.


  • New Zealand’s jobless rate eased further to 4.8% in Q2 2017.
  • This is the best reading for the jobless rate since Q4 2008.
  • However, the jobless rate improved partially because the labor force participation rate plunged from an all time high of 70.6% to 70.0%.
  • This is the poorest reading for the participation rate in four quarters.
  • Jobs growth, meanwhile, was actually negative in Q2 2017, falling by 3K.
  • 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 three consecutive quarters already.
  • Also, the rise in the labor cost index has been somewhat stable, rising by 0.3% to 0.5% since Q1 2012.
  • Somewhat subdued compared to the pre-crisis years when the labor cost index rose by 1.0% or more quarter-on-quarter, though.
  • Year-on-year, the labor cost index rose by 1.7%, accelerating from the previous quarter’s 1.6% rise.
  • In terms of trend, the labor cost index has been growing between 1.5% and 1.7% since Q1 2013, so stable overall.
  • Like the quarterly reading, however, wage growth is somewhat subdued compared to the 3.0% (or more) annual increases that was usually reported during the pre-crisis years.


  • Headline inflation was flat quarter-on-quarter in Q2 after the 1.0% surge in Q1, which was the best reading since Q2 2011.
  • Worse, the flat quarterly reading in Q2 means that CPI missed the RBNZ’s forecast of 0.3%.
  • The slowdown was broad-based since 8 of the major 11 CPI components printed weaker readings in Q2.
  • In particular, the alcoholic beverages and tobacco component only printed a +0.1% increase after surging by 4.0% in the previous quarter because of a tax on tobacco products that was introduced in the previous quarter.
  • The weaker increase in food prices was also a major drag (+0.7% vs. +2.2% previous).
  • Also, 5 of the 11 major CPI components were in negative territory.
  • The biggest drag was the 1.3% drop in transport component (+0.8% previous.)
  • Moving on, the year-on-year reading came in at 1.7%, which is much slower compared to the previous month’s solid +2.2% reading.
  • This is a big miss from the RBNZ’s forecast of +2.1%.
  • The slowdown for the annual reading was also broad-based since 7 of the 11 major CPI components printed weaker readings.
  • And among these, the biggest drags were the 4.6% drop for the communications components (-3.1% previous) and the weaker 1.2% increase for the transport component (+3.5% previous).
  • On a more upbeat note, the price of tradables, which has been the main source of New Zealand’s inflation problems, rose by 0.9% year-on-year.
  • This marks the second quarter of increases after 10 consecutive quarters of drops.
  • But on a more downbeat note, the increase in the price of tradables is much weaker compared to the 1.6% rise in Q1.

Business Conditions & Sentiment

  • BusinessNZ’s performance of manufacturing index (PMI) dropped from a 16-month high of 58.2 to a four-month low of 56.2 in June.
  • The deterioration was broad-based since all components took hits, with the employment and new orders sub-indices taking the brunt of it.
  • On a happier note, PMI has been expanding (above the 50.0 stagnation mark) since October 2012.
  • Meanwhile, BusinessNZ’s performance of services index (PSI) slightly eased from 58.8 to 58.6 in June.
  • Most components actually printed stronger readings but the sharp drop in the activity/sales sub-index (59.4 vs. 62.9 previous) dragged down the headline reading.
  • Looking forward, ANZ’s business confidence index eased to 19.4 in July after jumping to 24.8 in June.
  • This means that a net of 19.4% of businesses in New Zealand are still optimistic for the year ahead.
  • Looking at the breakdown, 25.8% of agricultural business were upbeat (26.6% previous), 23.3% for services (32.6% previous), 18.2% for construction (7.7% previous), and 16.4% for retail (12.5% previous).
  • Manufacturing was the least optimistic since only a net 8% of manufacturing businesses surveyed (17.3% previous) felt upbeat about New Zealand’s economy.
  • Looking at the sub-components, inflation expectations dipped from 2.03% to 1.98%, which is a bad sign for CPI.
  • This is compounded by the fact that pricing intentions fell from +31.1 to +27.6, which means that less firms were inclined to raise prices.
  • But on the bright side, export intentions increased from +27.0 to +32.7, which is the highest since April 2014.
  • As for rate hike expectations, less firms are expecting a rate hike from the RBNZ (57.6% vs. 50.6% previous).


  • The number of building permits issued in New Zealand fell by 1.0% to 2,562 in June.
  • 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.
  • Also, the number of building permits issued during the Q2 months is still higher compared to the Q1 months, so private investment will likely give GDP growth a boost.
  • Median house prices, meanwhile, fell by 0.2% in June.
  • Home prices have been weakening for three consecutive months already and the recent dip is the first negative reading since months.


  • New Zealand’s seasonally unadjusted trade surplus widened from $74 million to $242 million in June.
  • That’s in Kiwi dollars by the way.
  • This marks the fourth month of surplus after eight straight months of deficits.
  • Also, this means that trade will be a growth driver in Q2 after being the major drag in Q1.
  • Exports actually fell by 4.5% in June (+4.8% previous).
  • However, the decline in exports was more than offset by harder 8% drop in imports, which is why the trade surplus widened anyway.
  • Exports probably took a hit when the Kiwi’s trade-weighted index (TWI) jumped from 75.50 to 77.92.
  • And unfortunately, the TWI rose further to a five-month high of 78.41 in July.
  • It remains to be seen if the relatively stronger Kiwi will have a negative effect on New Zealand’s exports, though.
  • Also worth noting is that the RBNZ’s forecast was for the TWI to come in at 76.0 by the end of Q2 before easing further to 75.8 by Q3.
  • However, the TWI has been going in the opposite direction and is already way above the RBNZ’s forecast, so the RBNZ probably won’t be too happy about that.

Putting it all together

Source: RBNZ May Monetary Policy Statement
Source: RBNZ May Monetary Policy Statement

New Zealand’s GDP growth of 0.5% quarter-on-quarter and 2.5% year-on-year missed the RBNZ’s forecasts of +0.9% and +2.9% respectively. The RBNZ wasn’t too worried about this during the June RBNZ statement, though.

And it looks like the RBNZ was right not to be worried since the available GDP components point to a pickup in Q2 GDP growth.

Trade, for instance, is expected to be a growth driver after being a major drag in Q1. Although it remains to be seen if the Kiwi’s recent strength will adversely affect exports. Also, it remains to be seen if the RBNZ will complain about the Kiwi’s recent strength.

Anyhow, higher building permits in Q2 also point to higher residential and business fixed investments.

And while there are no up-to-date leading indicators for consumer spending, business sentiment surveys show that retail companies were upbeat overall in Q2, which hints at the possibility of stronger (or at least steady) consumer spending in Q2.

Moving on to inflation, Q2 turned out to be a disappointing after a rather promising performance in Q1. CPI was flat quarter-on-quarter in Q2, missing the RBNZ’s forecast of 0.3%. Year-on-year, CPI rose by 1.7%, which is a big miss from the RBNZ’s forecast of +2.1%.

Worse, the weakness in CPI was broad-based for both the quarterly and annual reading. And the RBNZ may take note of that (or not).

As for the labor market, the latest jobs report was rather disappointing. And while the labour cost index did print a faster 1.7% year-on-year increase, that’s not really a very noteworthy acceleration trend-wise since the labor cost index has been growing between 1.5% and 1.7%.

Still, the 1.7% increase is better than the RBNZ’s forecast of 1.5%. Even so, the faster 1.7% wage growth still pales when compared to the pre-crisis years when the labour cost index grew by 3.0% or more year-on-year.

In summary, growth was a disappointing in Q1 but things look brighter in Q2. The recent weakness in CPI, meanwhile, may make the RBNZ raise an eyebrow and possibly influence its tone. And the same can be said of the recent developments in the labour market and the Kiwi’s recent appreciation.