Analysts warn stronger output may not sway monetary policy
Two major banks have upgraded their forecasts for New Zealand’s September-quarter GDP, predicting growth significantly stronger than the Reserve Bank of New Zealand’s November projections as interest rate–sensitive sectors show signs of recovery.
ASB Bank expects Q3 GDP to have grown 0.8% on a production basis, while Westpac has revised its forecast upward to 0.9%, both substantially higher than the RBNZ’s 0.4% estimate from its November Monetary Policy Statement.
“We think the economy grew 0.8% over the September quarter, stronger than the RBNZ’s pick,” ASB economist Wesley Tanuvasa wrote in the bank’s GDP preview released on Friday.
Westpac senior economist Michael Gordon noted the upgrade came after more recent sectoral releases showed “surprisingly strong gains in several areas,” including business financial data released on Thursday.
Some sectors show renewed momentum
Both banks point to recovery in construction and discretionary services as key drivers of growth. ASB forecasts construction grew 1.9%, supported by a 1.5% increase in total building work volumes and 2.3% growth in cement production, though both from low levels.
“Seeing interest rate–sensitive sectors come off life support will comfort the RBNZ, providing signal that monetary transmission is (finally) being supported by Tier 1 activity data,” Tanuvasa said.
Manufacturing is expected to contribute significantly, with ASB predicting 1.3% growth following a recovering PMI and resilient business outlook survey results. Westpac highlighted strong activity at Tiwai Point and Methanex facilities, which had previously been constrained by energy shortages.
Retail and accommodation services are forecast to expand, reflecting strong core retail spending volumes. Westpac noted a 1.9% rise in sales volumes, attributing the strength to lower mortgage rates putting more money back in households’ pockets and stronger overseas tourist arrivals.
Both banks acknowledge significant uncertainty around the figures due to pending annual revisions. Westpac estimates annual benchmarking will lift GDP by around 0.4%, with upward revisions expected for the March 2024 and March 2025 years.
“If our forecast is correct, this would mark a continuation of the unusually high volatility in GDP that we’ve seen in recent times,” Gordon said.
Limited policy impact expected
Despite the stronger-than-expected growth forecasts, both banks suggest limited immediate implications for RBNZ monetary policy. ASB noted financial conditions have tightened significantly since November, with swap yields advancing approximately 60 basis points.
“The RBNZ will remain data dependent and vigilant to global shocks,” ASB economists noted. “We don’t think GDP data will do enough to force material revision of the November MPS guidance.”
Westpac cautioned that while markets have begun speculating about OCR hikes, stronger GDP data alone may not shift the RBNZ’s approach.
“We think it would pay for the RBNZ to provide some guidance on its thinking during the long summer break between policy meetings,” Gordon said.
Statistics New Zealand will release the official Q3 GDP figures on 18 December.
