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Investing.com -- The New Zealand economy, as anticipated, emerged from recession at the end of the previous year. The impact of recent monetary easing is expected to further fuel the recovery in the upcoming quarters.
In the fourth quarter (Q4), the real production GDP experienced a rise of 0.7% on a quarter-to-quarter basis. This growth surpassed most expectations, which included predictions from LSEG Consensus and Capital Economics (CE) of +0.4%, and the Reserve Bank of New Zealand (RBNZ) of +0.3%. Despite this positive growth, the real GDP remained 1.1% lower than the previous year due to the steep downturn over the two preceding quarters.
The secondary sector of the economy, still recovering from the RBNZ’s previous tightening cycle, saw a 0.8% quarter-to-quarter decline in output. This marked the sixth consecutive quarterly decline for the sector. This decrease was primarily driven by a drop in construction activity. In contrast, the manufacturing and electricity generation sub-sectors witnessed a slight increase in output in the last quarter.
The services sector, a significant component of the economy, saw a robust 0.8% quarter-to-quarter rise in Q4, more than offsetting the 0.5% decline from the third quarter. This increase was widespread, with gains recorded in eight out of the 11 services industries. Primary-sector output also experienced a strong 1.1% quarter-to-quarter rise in Q4.
The strong pickup in activity in the last quarter narrowed the output gap from -1.7% of GDP in Q3 to -1.4% of GDP in Q4. Current PMI data suggests that the early stages of recovery have continued into the first two months of the year, indicating that the output gap should continue to narrow, albeit at a slow pace.
Capital Economics stated, "As things stand, the stronger than expected data shouldn’t keep the RBNZ from handing down a few more rate cuts this year, not least because – at 3.75% presently – the OCR is still in restrictive territory. However, it’s becoming more apparent that risks to our forecast for a terminal policy rate of 2.25% are tilted to the upside."
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