New Zealand GDP - Solid growth, with a pick-up expected

"New Zealand's GDP growth was spot on market expectations at 0.8% q-o-q and 2.5% y-o-y. Growth was supported by a strong rise in both exports and domestic demand. Growth has also been fairly broad-based, with eleven of 16 industries showing a rise in the quarter," notes Paul Bloxham, Chief Economist, Australia, NZ & Global Commodities at HSBC.

Key quotes:

"The area of weakness in the numbers was construction activity, which fell for a second consecutive quarter, partly reflecting a pullback in the Canterbury earthquake reconstruction. However, given the still significant undersupply of housing in Auckland and expected ramp up in infrastructure investment, we expect that the weakness in construction will prove temporary. We expect growth to lift to an above-trend pace in H2 2017 and 2018."

"Despite solid growth there are still few signs of a pick-up in inflation. The consumer price deflator was running at a pretty soggy 1.2% y-o-y in today's release. We expect the RBNZ to be firmly on hold for the moment. However, we do expect a lift in growth, more expansionary fiscal policy and a likely pull back in inward migration will, over time, start to put some upward pressure on wages and inflation. We see the
RBNZ starting to lift its cash rate in Q3 2018."

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