New Zealand: GDP rebounds strongly, kiwi strengthens above 0.7150 – Westpac

New Zealand’s (NZ) GDP rose by 14% in the September quarter, a stronger than expected rebound from the COVID-19 lockdown in the previous quarter, economists at Westpac inform. This data will have embedded the expectations that the Reserve Bank of New Zealand (RBNZ) will be in no hurry to cut-rate again.

The NZD has appreciated by nearly 7.8% against the US dollar this quarter and is up 5.8% on a year-to-date basis as the kiwi has jumped to 0.7150, a 32-month high. 

Key quotes

“Successfully eliminating the spread of COVID-19 has allowed the New Zealand economy to rapidly swing back into action once the restrictions were lifted. The production measure of GDP rose by 14% in the September quarter, following an 11% drop in the June quarter (revised up from  -12.2%).”

“The strength of the economy’s rebound does raise questions around how much stimulus is appropriate going forward. Indeed, we’ve already seen in yesterday’s Half-Year Economic and Fiscal Update that the Treasury has revised down its assumption of how much of the $62B Covid response fund ends up being spent.” 

“For the RBNZ’s part, it’s not so clear-cut. Its bottom line is whether inflation is on track to meet its mandated target, and stimulating the economy is a means to an end. A stronger performing economy on its own suggests higher inflation than otherwise. But our forecasts still suggest that the RBNZ will still struggle to bring inflation up to target over the next couple of years. Recent good news on the economic front has also led to a sharp rise in the New Zealand dollar, which depresses imported inflation.”