Gross domestic product

Resurgent exports boost GDP as domestic economy wilts

15 Sept 2022

Joel Glynn

Our take on the latest Gross domestic product (Thu 15 Sept 2022)

GDP grew 1.7% in June quarter (seasonally adjusted)

Export volumes up 21% from March (seasonally adjusted)

Household spending fell 3.1% in June quarter (seasonally adjusted)

The key numbers...

GDP increased 1.7% in the June quarter, exceeding our forecast of 0.6% and the market’s pick of 1.0%. Growth was driven by a strong quarter for exports, with export volumes up 21% from the previous quarter (all figures seasonally adjusted).
Strength in exports was driven by a recovery in both goods and services exports. Exports of services increased 61% from the March quarter, while goods exports increased 3.8% (having contracted 6.3% in the previous quarter).
Some of the largest goods exports categories recorded strong growth, with agriculture and fishing primary product exports up 17% from March 2022 and forestry primary product exports increasing 19% (both figures seasonally adjusted). However, both these increases need to be considered in the context of a very weak March result.
Household spending recorded a substantial decline of 3.1% in the June quarter. Spending on durable goods fell 8.6%, with a 2.3% fall in spending on non-durables from March (all figures seasonally adjusted). Households were forced to adjust their budgets in the face of higher mortgage rates and fuel prices as well as broader cost-of-living pressures.
Private sector investment spending was down 3.7% from March. Expenditure on plant, machinery, and equipment (PME) recorded a 2.7% fall from the previous quarter, while investment in transport equipment plunged 29% from March. Public sector investment rose 8.0% in the quarter, despite a 3.6% decline in non-building construction (all figures seasonally adjusted).

Components of expenditure GDP

Annual % changes

...and our reaction

Goods exports recovered almost 60% of the ground lost in the export collapse in March. This partial recovery indicates there is still scope for further increases in goods exports if capacity constraints, shipping disruptions, and global demand allow.
Services imports increased by a modest 7.1% in the June quarter, which is slight compared to the services export growth of 61%. The relaxation of COVID-19 border controls has clearly been highly beneficial to New Zealand’s economy. With border restrictions being removed at the end of July, we expect another substantial increase in services exports in next quarter’s data.
Weaker household spending in June was unsurprising given previous data on retail activity. New Zealand households continue to grapple with rising prices and mortgage rates, and it is clear household spending is being negatively affected across all spending categories. The strong decline in spending on durables indicates households are delaying major purchases where possible.
Higher interest rates are not only hitting households, with higher financing costs over the last six months also filtering through to reduce private investment. Although investment in plant and machinery was softer in June, the decline was reasonably small, and bigger falls could occur in coming quarters as higher interest rates and weaker demand further undermine businesses’ willingness to invest. The 29% fall in transport investment was more eye-catching, and it was possibly driven by the timing of investment decisions due to the introduction of the Clean Car Discount scheme in April.
Although economic growth was higher than expected in June, the recovery of exports and the decline in household spending were both anticipated. Looking forward, the question is whether the reopening of New Zealand’s borders and consequent recovery in services exports will be enough to offset ongoing weakness in household spending and private investment. Whatever the case, in our view the 1.0% quarterly decline in domestic economic activity in the June quarter gives a much more accurate read on the economy’s health than the 1.7% increase in GDP.

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Gross domestic product

Resurgent exports boost GDP as domestic economy wilts

The key numbers...

Components of expenditure GDP

...and our reaction

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