New Zealand GDP Preview: On the brink of a technical recession, Kiwi set to fall?


  • New Zealand's GDP set to rebound 0.5% QoQ in Q1 2021.
  • Supply shock is seen threatening economic recovery.
  • The kiwi appears vulnerable on the FOMC outcome and NZ GDP release.  

New Zealand’s (NZ) economy is expected to see a revival in the economic recovery or a missed technical recession in the first quarter of 2021 after witnessing a contraction in the final quarter of the last year.

Even though the impact of the pandemic overseas continues to threaten the economic growth outlook, a closer look reveals that the surge in commodities prices, the country’s rampant housing market and capacity constraints emerge as the factors affecting the economy’s performance.

The South Pacific nation’s GDP rate is expected to rebound by 0.5% QoQ in the three months to March vs. a 1% contraction seen in the fourth quarter of 2020. On an annualized basis, the economy is seen growing by 0.9% in Q1 vs. a -0.9% recorded in the previous quarter.

NZ economy just avoids a technical recession

Despite New Zealand’s relative success in combating the coronavirus crisis, the economy is not out of the woods yet, with the recovery quite uneven and uncertain.

Economic indicators remain upbeat, with the Reserve Bank of New Zealand’s (RBNZ) inflation expectation accelerating alongside the robust rise in the first quarter retail sales.

Further, the New Zealand Institute of Economic Research (NZIER) revealed that beyond the weaker starting point for GDP growth, the near-term growth outlook has been revised up.

Christina Leung, Principal Economist at NZIER, predicts a 1% expansion, adding that “we realize that is at the higher end of the range of forecasts out there, but many of the indicators of activity in sectors such as construction, wholesale and retail trade are pretty strong for the March quarter.

However, there are significant factors undermining the turnaround such as a slowdown in international tourism due to the closed borders, capacity constraints and supply bottlenecks.

“Biting capacity constraints (such as difficulty finding labor, global shipping delays and supply bottlenecks) have arguably become a larger constraint on activity than the demand and income shock, according to the ANZ economists.  

In light of the mixed outlook, the RBNZ has predicted a 0.6% drop in GDP for the quarter. Therefore, a downside surprise to the GDP may have little to no impact on the central bank’s monetary policy outlook.  

Disappointing GDP, hawkish FOMC to snap kiwi’s wings

NZD/USD is bouncing off two-month lows on 0.7100 in the runup to the US Federal Reserve (Fed) showdown. The pullback can be seen as closing out of short positions ahead of the all-important FOMC monetary policy decision and the NZ Q1 GDP release, both slated for release on Wednesday.

If the Fed turns out to be explicitly hawkish, as widely expected, it could dent the overall market sentiment while lifting the US dollar’s demand. In such a case, the influence of the NZ GDP report on the kiwi could likely be limited, as the persisting risk trend and dollar’s moves could be the main market motors.

Only a big beat on the NZ GDP figures could help reverse the recent downtrend in the kiwi, with a test of the powerful resistance around 0.7190 inevitable. However, or a terrible report alongside likely hawkish hints from the Fed could knock off the rates back towards 0.7100 and 0.7045 support area.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD retreats towards 1.1800 on confirmed death-cross, focus on PMI

EUR/USD remains pressured below 1.1800 ahead of the Eurozone PMI reports. The euro remains weighed down by the ECB’s dovish bias and covid woes but a cautious optimism seems to put a floor under the prices. The pair confirmed a death cross on the daily chart, backing the bearish view.

EUR/USD News

GBP/USD: Weaker below 1.38 amid covid, Brexit woes, ahead of UK data

GBP/USD remains on the defensive below 1.3800 amid looming Brexit and covid concerns. Ireland’s DUP leader threatens to overrule border checks if PM signs NI protocol. UK coronavirus death toll stays firmer, return of lockdown feared. UK Retail Sales, PMI awaited.

GBP/USD News

Gold’s bearish potential to remain intact, focus on weekly close

Gold price staged a decent bounce from eight-day lows of $1793 on Thursday and ended the day in the green at $1807, bringing a halt to a two-day downtrend from $1825 levels. Bearish bias remains intact for gold despite Thursday’s rebound.

Gold News

Etherum bulls eye $2,500 as on-chain metrics add tailwind

Ethereum price has sliced through vital supply barriers to assert dominance and reveal that bulls are back in town. ETH is likely to tag a psychological level, and on-chain metrics indicate clear skies for the smart contract token.

Read more

US Markit PMIs Preview: Pre-weekend dollar boost? Downbeat figures could exacerbate risk-off mood

Two steps down, one step up – that has been the playbook for risk-averse markets. What happens when traders have little time to act ahead of the weekend and the last word belongs to a downbeat figure? 

Read more

Majors

Cryptocurrencies

Signatures