GDP in New Zealand from 2014-2015 was a respectable 3.5%. The farming sector made up c25% of this total, with the Christchurch rebuild making up a further 17%. As dairy continues to languish, and the Christchurch rebuild continues to slow to ‘normalised’ building levels, we expect to see the wider New Zealand economy slowing. The only major sector still supporting growth in New Zealand has been the record immigration levels we have witnessed over the past 12 months. Immigration alone made up over 45% of New Zealand’s 2014-2015 GDP performance.
The slowing in New Zealand’s economy has led to a large drop in business confidence, as shown in the chart below, which in turn is leading the market to price in further cuts in the New Zealand Official Cash Rate (OCR). At present the market is reasonably confident we will see another 0.25% reduction on the 10th September, with the potential for a further similar rate cut in December taking the OCR to 2.50%, a level last seen in January 2014.
Chart 1 – ANZ Business Confidence Index
Source: ANZ August Business Outlook
Chart 5 below is an excellent snapshot of the individual global economies, showing their current growth/contraction levels vs where they were 6 months ago. An example of how to read this chart is that above the 50 mark is a country that is growing, below is in contraction. The bottom row is showing the change since 6 months ago and to the right of 0 is an increase, with the left of 0 being a decrease.
In reviewing this chart New Zealand is still growing well ahead of the majority of the rest of the world, but is slowing; while Australia has lower growth but is accelerating.
Chart 2 – Global PMI levels & change
Source: ANZ Charts That Matter, Bloomberg, Markit, Caixin, ANZ Research