New Zealand’s economic performance in the third quarter of 2023 has revealed an incredible resilience. The quarter-over-quarter Gross Domestic Product (GDP) increased by 1.1%, beating analysts’ predictions of 0.9%. This increase marks a significant rebound from the last quarter’s negative growth of -1.0%. The previous estimate had actually forecasted an even smaller decline of -0.9%, later revised down still further. All of a sudden New Zealand’s economy is booming again! In Q3, the GDP grew only 1.3% YoY.
Statistics New Zealand released the second GDP report for this year on Thursday, allowing a closer look at the nation’s recovery path. That meant a new year-over-year contraction of 1.1% for the second quarter, according to the report. This figure was revised down from the previous -0.6% estimate. Though welcome, this revision is yet another sign of the economy’s up-and-down journey as it continues to find its footing in a post-pandemic world.
Stronger Growth Signals
The 1.1% QoQ growth rate for the third quarter was a huge improvement in economic activity compared to the second quarter. Analysts had expected a much more modest increase so the actual growth figures were a pleasant surprise all around. According to economic indicators, both consumer spending and business investments were pivotal forces driving this recovery.
Annualized quarterly GDP numbers extrapolate current quarterly growth rates for the rest of the year. The problem is that they can often be misleading or exaggerate the actual state of the economy. Quarterly figures can be largely affected by temporary shocks, like seasonal change or other sudden disruptions. Yet the current numbers are showing a strong recovery trajectory as New Zealand looks towards a post-COVID, post-cyclone economic future.
Currency Response Remains Tepid
The blockbuster GDP report just came out, but the New Zealand Dollar (NZD) is largely unmoved. Incredibly, this lack of progress has not gone unnoticed by market observers. The NZD/USD exchange rate is presently 0.5772, showing a decrease of 0.27% so far today. Such a muted response calls into question market confidence and what exactly is driving the currency valuation in spite of strong economic data.
Some analysts believe that the NZD is being hobbled by deeper market trends and international macroeconomic factors. Market participants are exhibiting a risk averse stance in the currency market. The slim victories suggest they are concerned about future macroeconomic evolution or potential unknown shocks from elsewhere.
Long-term Economic Outlook
Looking ahead, New Zealand’s economy is up against four big question marks. This first steep drop in Q1 2020 was due largely to the onset of the COVID-19 pandemic itself. This year’s event echoes how rapidly the tides can turn. Recent quarterly growth figures indicate a strong rebound. Here’s the rub though, inflation, geopolitical conditions, global economic conditions, and potential policy changes will all have a far greater influence on economic performance than the IRA.