What To Expect From New Zealand’s “New” GDP

20th June 2019 Off By binary

By Orbex

Coming up tonight we have the official release of the Q1 GDP statistics from New Zealand. Despite the government’s attempt to move the country’s metric of economic health away from cold math towards their new concept of “wellness”, the figure is still one of the most important for the markets.

The government has promised increased spending on their part. However, projections for economic growth for the first quarter are somewhat downbeat.

There is a wide range of factors that lead to this outlook, many of which are related to the exchange rate. But, this is also relatively old data, coming almost at the end of the second quarter.

Therefore, even though its a key point for understanding the outlook and projecting monetary policy in the future, the market reaction could be somewhat muted.

What we are looking for

The GDP data is the only major point to come out of New Zealand for the whole day, and will leave the currency to its own devices until next Tuesday. That doesn’t mean that we can expect trading to be purely technical, since there are a lot of external data events that routinely affect the kiwi. These include potential information from Governor Lowe of Australia, as well as BOJ and BOE rate decisions.

Expectations are for New Zealand’s Q1 GDP to have expanded 0.4% on a quarterly basis, picking up the pace from the 0.2% prior. This would be in line with the RBNZ’s projections, but would still be below the average of the last several years. We should remember that last time, although the data was within expectations, it was the worst quarterly performance since mid-2015.

The longer term is more important

On an annualized basis, we can expect the GDP to have moderated its growth pace, coming in at 2.2%compared to 2.3% in the prior measure. This would be the worst performance since 2014. Now, it’s not unusual for prior figures to be revised, and that could keep the number from falling below 2,3%, the current low of the cycle.

A poor showing for the Kiwi economy in the first quarter wouldn’t put the country out of sync from other major economies that also have a similar showing. In fact, it would be right in line with their largest trading partner: Australia.

Australia has gone the exact opposite in terms of its budget, cutting spending and taxes, while New Zealand has increased the government’s role in the economy. However, those policies weren’t implemented until the first quarter was over.

The reasons to be bullish

There is cause for concern, in fact, if Q1 GDP in New Zealand doesn’t turn out to have a good showing. This is because it was a good time for the economy.

Not only were there record tourist arrivals, and dairy prices were high, there was also quite a bit of optimism about resolving the trade dispute between China and the US. This helped support capital flows into commodity currencies. New Zealand also managed to avoid the major housing disruptions that plagued its larger neighbor.

Analysts have pointed to expectations among major firms to not increase their capital spending as the year goes on. Dairy prices have finally turned the corner and have been on the backfoot since May. All these factors combine to suggest the first quarter might have been the best for New Zealand.

By Orbex

 

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