Our take on the latest Gross domestic product (Thu 20 Jun 2019)
NZ economy grew 2.7%pa in March 2019
Gross fixed capital formation growth up 2.4%pa
Private consumption growth held, up 3.4%pa
The key numbers...
- There are a few bright spots in today’s buoyant release, however they mask growing concerns about the economic outlook.
- Construction activity was particularly bright in the March quarter, with the increase in spending indicating growth despite capacity constraints.
- However, two questions remain: is the current strength just making up for softer growth previously, and can this current growth be sustained in light of the capacity constraints on credit and labour?
- Consumer spending continues to be robust, but we expect that growth will soften over the next year, particularly given lower household confidence in recent months.
- Of ongoing concern is that the future foundations of sustained growth are deteriorating. Although residential and non-residential construction growth was strong, the drop in civil and infrastructure spending shows that that base from which we can continue building on is lagging behind, restraining future growth.
- Business investment remains poor, with plant, property, and equipment spending growth turning negative. A lack of business investment is a key downside risk to the economy, and although the risk isn’t new, there also hasn’t been any improvement in investment.
National economic growth
Production based, annual average % change
...and our reaction
- The New Zealand economy expanded by 0.6% (seasonally adjusted) in the first quarter of 2019, in line with market expectations but above the Reserve Bank’s 0.4% growth expectation.
- Construction activity was particularly strong this quarter and was the main contributor to growth. Residential and non-residential building both recorded strong results, up a combined 9.1%pa after a lacklustre few quarters.
- However, spending on “other” construction, generally civil works and infrastructure, fell for the third straight quarter, down 12%pa. Of equal concern was the 0.8%pa fall in plant, property, and equipment spending, signalling a contraction in business investment.
- Household spending is holding up better than expected, with household consumption up 3.5%pa in March as consumers remain relaxed about their goods spending habits. However, growth in services spending was softer than it has been recently.
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