Gross Domestic Product rose 1.4% in the September quarter on the back of the largest expansion in the agricultural sector in 25 years, according to Statistics New Zealand.
The extremely strong result, on the back of a rebounding dairy market following drought earlier this year, is stronger than the average expectation of economists for a rise of 1.1%.
The Reserve Bank also forecast a 1.1% rise, so the higher than expected figure will give the central bank encouragement and room to begin its expected cycle of interest rate rises early next year.
The dollar immediately spiked from US82.2c to US82.6c before retracing to US82.35c and then falling back toward US82c, which may well be more about reaction to the news that the US Federal Reserve is beginning the long-expected “tapering” of its accommodative monetary policy.
This increase in GDP is the largest since the December 2009 quarter and follows a revised 0.3% (from 0.2%) rise in June.
…Minister of Finance Bill English said New Zealanders’ “hard work” was now starting to pay dividends.
“Despite the worst drought for several decades earlier this year, New Zealand now has one of the faster growing developed economies in the world.”
English said New Zealand’s latest 3.5% annual economic growth (from September 2012-September 2013) compared with 2.3% in Australia, 1.8% in the US, 1.9% in Canada, 2.4% in Japan, 1.5% in Britain and a negative 0.4% in the Euro area. Growth across the OECD averaged 1.4% in the year to September.
The strong increase in dairy production was the main contributor to a 17% rise in agriculture, which makes up about 5% of the New Zealand economy.
…Increases in agriculture and manufacturing production were partly offset by declines in:
Construction (down 1%), as falls in infrastructure and commercial construction outweighed an increase in housing construction. Investment in housing was up 8.5% from the previous quarter.
Business services (down 0.8%), with most sub-industries down, except for architectural and engineering services.
The expenditure measure of GDP was up 1.1% in the September 2013 quarter. The main movements were:
Investment in fixed assets (up 3.1%), driven by increased imports of plant, machinery, and equipment. This was also reflected in a 4.5% rise in imports of goods and services.
Build-ups in manufacturing and distribution inventories, as supply of goods exceeded demand this quarter.
Volume of spending by New Zealand households (up 0.4%), mainly due to increased spending on durables like furniture and motor vehicles.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
