Asia Regional Integration Center

New Zealand grew by 1.1% saar in Q1 of 2018, slowing from 1.7% growth in Q4 of 2017. This was the lowest rate in the past 19 quarters. Change in inventories was the biggest contributor to growth, adding 1.8 percentage points. Fixed capital added 0.7 points, and consumption added 0.3 points, while net exports subtracted 1.7 points. Retail sales expanded by 3.8% in Q2, up from 3.4% in the previous quarter. The seasonally adjusted performance of manufacturing index increased from 51.2 in July to 52.0 in August, further above the threshold of 50 indicating expansion. The business confidence index declined deeper into negative territory, from –44.9 in July to –50.3 in August. However, consumer confidence remained positive at 120.0 in June, only slightly lower than 121.0 in May, with values above 100 indicating optimism. Inflation rose from 1.1% in Q1 to 1.5% in the following quarter, still well within the Reserve Bank of New Zealand target of 1.0%–3.0%.

The seasonally adjusted unemployment rate ticked up from 4.4% in Q1 to 4.5% in Q2. In its 9 August 2018 meeting, the central bank retained the official cash rate at a record low of 1.75%. Consumer optimism, buoyed by a robust labor market and low interest rates, could boost private consumption, as indicated by higher retail sales. The tight labor market and persistent expansion in manufacturing support the prospect of steady growth. FocusEconomics panelists expect growth at 2.7% in both 2018 and 2019, underpinned by government plans to increase spending, an accommodative monetary policy, and favorable export prices.