New Zealand GDP rises less than expected in Q3 2018

Economic growth in New Zealand eased to a five-year low sparking concerns that the Reserve Bank of New Zealand could be thinking of a rate cut. The declines came as the manufacturing sector and farming dragged economic growth lower.

The GDP data sent the Kiwi dollar lower as it also comes amid lower business confidence and the global trade tensions adding to the concerns. All of this has led investors to start speculating on whether the RBNZ will response with a rate hike sometime during the year.

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According to official data, New Zealand’s Gross domestic product expanded just 0.3% in the third quarter. This was well below the median estimates which forecast a 0.6% increase and down from the 1.0% increase in GDP that was seen in the second quarter of the year.

The third quarter GDP growth was the lowest pace of growth registered since the fourth quarter of 2013.

On an annualized basis, New Zealand GDP was seen at 2.6% in the third quarter of the year. This was again below estimates of a 2.8% increase.

The GDP data also missed the RBNZ’s forecast of a 0.7% increase as the manufacturing sector contracted sharply.

Some of the institutional banks in New Zealand responded with a downgrade of their view on interest rates noting that the Reserve Bank of New Zealand could cut rates by November 2019 at the latest.

The weaker than expected GDP figures increased the risks for the growth outlook to slow down next year. The RBNZ forecast that the GDP could accelerate to 3.4% in 2019.

The RBNZ has held interest rates steady for the whole of this year. At one of the recent monetary policy meetings, the RBNZ Governor Orr said that the next policy move from the central bank would depend on how the economy would fare.

New Zealand current account deficit narrows

Earlier in the week, New Zealand’s current account deficit was seen narrowing to NZD 2.6 billion in the third quarter of the year. This was about 102 million smaller compared to the June 2018 quarter.

The data from Statistics New Zealand showed that the annual current account deficit widened to NZD 10.5 billion in September which was about 3.6% of the GDP. This was bigger compared to the same period in 2017 when the current account deficit was about 2.7% of the GDP.

The seasonally adjusted goods deficit was seen narrowing to NZD 997 million while services sector showed a surplus of NZD 1.1 billion for the third quarter.

Manufacturing sector slumps

Data showed that the manufacturing sector fell 1.0% in the three-month period. This dragged down the overall growth. The primary industry sector grew 2.2% while the services industries slowed to 0.5% during the reported period.

The weak set of data comes as the New Zealand government had recently hiked minimum wages and applied a series of measures including tightening restrictions for foreign homebuilding and curbing immigration.

The GDP data came as just the week before, the Treasury department trimmed the economy’s growth forecasts for 2019 as it cited global trade frictions and slowing immigration.