New Zealand economy likely to have expanded 1 pct in Q2 on strong rise in construction sector

The upcoming GDP data of New Zealand is expected to indicate that the economy remained in sound shape in the second quarter. Following a decent expansion of 0.7 percent in the prior quarter, the economy is projected to have expanded 1 percent in the June quarter, said Westpac in a research note. This is likely to push the annual 2016 growth to 3.5 percent, the most rapid pace since 2014.

Construction is likely to have added the most to the second quarter growth again; however, gains are expected to be quite widespread throughout sectors. Construction is expected to have grown 4.1 percent in the second quarter. The agricultural sector seems to have performed better in the June quarter as meat and milk production recovered following a weaker starter to 2016 due to weather-related concerns.

Meanwhile, expansion in manufacturing production appears to have remained strong, while the signs seem optimistic on the consumer front, with retail sales registering the most rapid quarterly expansion since 2006, stated Westpac. In the meantime, mining sector is expected to have been the largest drag on the second quarter growth as the country’s oil production trends lower. But a lack of data on oil exploration signifies that series could be quite volatile and difficult to predict on a quarterly basis, according to Westpac.

The risks to the projection of second quarter GDP are tilted to the upside. Admittedly, growth in the expenditure measure of GDP is likely to come in stronger, stimulated by a sharp increase in the volumes of goods export, although the two measures of GDP usually diverge on a quarterly basis.

The sharp increase in volumes also augurs well for the current account, with the annual deficit likely to decrease to 2.6 percent of GDP. Strength in services exports, led by a surge in tourism, is providing additional support to the current account balance. The services balance is currently at around 1.7 percent of GDP, a rise from just 0.4 percent two years ago.