New Zealand Q2 GDP Beats Expectations

New Zealand’s GDP rebound by 1.7% in the second quarter, close to the forecast and the RBNZ’s expectation. Services grew strongly as tourists started to return. New Zealand’s GDP rose bu 1.7% on the June Quarter, much in line with 1.6% forecast, as well as the 1.8% rise that the Reserve Bank expected in its August Monetary Policy Statement. In contrast, the result beat the median market forecast for 1% rise.

The bounce in the second quarter followed a 0.2% dip in the first quarter. Assessment at the time was due ti disruptions to activity from the peak of the Omicrone wave, and the absence of the usual uplift in tourist spending at that time if year. Both of those effects were reversed out in the second quarter; the border reopening led to a strong lift in tourists during what would normally have been the seasonal lull.

Even the strong overall result, it’s important to note that there are parts of the economy that were in decline. Retail sales were down 3.7%, mining shrank by another 8%, non-food manufacturing fell by 1.3% and construction saw a surprising 2.4% fall.

Current result very much in line with the RBNZ’a expectation, there are no obvious implications for the interest rate outlook. The heart of the issue is that the economy is running above its non-inflationary capacity. Higher interest rates will work to close that gap over time, but the challenge is in managing that process. Doing too little means that inflation could become stubbornly persistent; too much could mean an unnecessary period of weak activity and high unemployment. It is agreed with the RBNZ that a 4% peak in the official Cash Rate would give the best chance of striking that balance.