New Zealand's boom: GDP rises strongly in Q4 13

New Zealand's boom: GDP rises strongly in Q413

New Zealand GDP increased strongly in Q4, rising by +0.9% q-o-q, to be +3.1% higher y-o-y (market had +3.1% y-o-y). Growth has been relatively broad based across sectors over the past year, as a combination of rising asset prices, elevated export prices and post-earthquake reconstruction provided a boost. These factors are likely to persist and timely indicators point to further solid growth in 2014. With the economy beginning to boom, we expect the RBNZ will need to raise rates further at coming meetings to keep inflation in check.

Facts
-The production measure of GDP increased by +0.9% in Q4 (market had +0.9%, HSBC had +1.1%). Annual growth was +3.1% (market had +3.1%, HSBC had +3.3%).

- Manufacturing activity was a key area of strength in the quarter, rising by +2.1% q-o-q, to be +3.4% higher for the year. Wholesale trade also rose strongly, up +3.2% q-o-q, while mining sector activity jumped by +9.4% q-o-q, after weakness in Q3.

- The expenditure measure of GDP rose by +0.6% in Q4 and +2.3% y-o-y. Exports picked up by +3.1% q-o-q, in part reflecting a rebound from the early 2013 drought. Household consumption was +1.2% higher in the quarter, to be +3.7% higher for the year.

Implications
Today's Q4 GDP figures confirmed the strong trend seen in a range of New Zealand economic indicators in recent months, with the economy registering a strong pace of growth.

The rise in activity has been relatively broad based across sectors over the past year, reflecting the fact that a range of fundamentals drivers are now underpinning New Zealand's strong economic performance. Post-earthquake reconstruction continues to support activity, with construction activity having risen +7.6% over the past year.

High export prices are also providing a boost. Coupled with the recovery in rural production from the early 2013 drought, rural incomes have risen strongly. This solid rise in incomes is likely providing support to broader spending and investment in the economy.

Consumer spending is also continuing to strengthen, reflecting the recent rapid rise in house prices along with an improving labour market.

These factors look likely to persist, and underpin further strong growth in New Zealand's economy in 2014 - with the country vying for the title of this year's best performer across the OECD. Recent business surveys confirm this view, with business confidence rising to a 20-year high in recent months.

Today's outturn will likely sit broadly in line with the RBNZ's expectations, with the central bank's most recent set of forecasts projecting growth of +0.8% q-o-q in Q4. With demand picking up strongly in New Zealand, and the economy already operating at capacity, cost pressures will rise quickly if left unchecked. As a result, we expect the RBNZ will continue to raise interest rates through 2014 in order to deliver on its inflation target. We expect the RBNZ to deliver a total of 75 basis points of additional hikes in 2014 with the next move likely to be in April.

Bottom line
New Zealand's economy grew strongly in Q4, with GDP rising by +0.9% q-o-q to be +3.1% higher y-o-y.

Rising asset prices, elevated export prices and post-earthquake reconstruction continue to provide a significant boost to activity.

With demand continuing to pick-up strongly, we expect the RBNZ to hike rates further in coming meetings with a total of 75 basis points of further hikes expected in 2014.

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