'Lost momentum': NZ economy likely to remain subdued near term

Remigio Civitarese
Marzo 15, 2018

A booming services sector helped the New Zealand economy grow by nearly 3 per cent in 2017.

Although the service sector was relatively healthy over the quarter, its impact on overall growth was tempered by issues in the primary sector.

Capital Economics Australia and New Zealand economist Kate Hickie also said the economy failed to regain any momentum at the end of a year ago and with net migration past its peak and business confidence remaining low, the recent strength of consumption and business investment won't be sustained.

Economic growth for the year was 2.9%, down 1.1% on the year prior.

On an expenditure basis, GDP grew by 0.4% during the quarter, well below the 0.7% level expected.

Westpac Bank senior economist Michael Gordon said the economy "appears to have lost some momentum over the course of the a year ago (barring any future revisions to the GDP data)", and noted that annual growth peaked at 4 percent in 2016 but slowed to 2.9 percent in 2017. Falling milk production was reflected in lower dairy manufacturing and dairy exports.

GDP per capita increased 0.1 percent this quarter, following a 0.2 percent increase in the September 2017 quarter.

"The underlying fundamentals for growth remain supportive, and include low-interest rates, record high Terms of Trade and increased fiscal stimulus", he said.

But that changed once the Labour-led coalition took the helm in October with business investment holding up, despite some negative sentiment towards the new administration, and a burst of retail spending in the final three months of the year. Growth in the September quarter, previously reported at 0.9%, was revised up to show an increase of 1%.

"Household spending was up 1.2 per cent in the December 2017 quarter, as households ate out more and spent more on groceries and alcohol", Statistics NZ said in a statement. "This fuelled increased retail trade activity, with food and beverage services and supermarkets experiencing growth", it said. "We expect growth to stay close to 3.0 percent in 2018, but the clear risk is that the slowdown to 2.5 percent that we expect in 2019 happens this year", she said.

However, those results were partially offset by flat growth in exports and a 3.9% lift in imports.

The New Zealand dollar has fallen following the release of the report, trading at.7308 against the USA dollar, a decline of 0.3%.

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