NZ economy expands at half speed

Wednesday 23rd December 2009

New Zealand’s economy grew at half the pace expected by Reserve Bank Governor Alan Bollard in the third quarter, as weakness in construction and manufacturing offset stronger activity in minerals.

Gross domestic product grew 0.2% in the three months ended September 30, according to Statistics New Zealand. GDP expanded by a revised 0.2% in the second quarter, when the economy emerged from recession. That’s up from an initial 0.1% estimate.

Bollard had estimated third-quarter GDP growth at 0.4% in his Monetary Policy Statement this month, where he flagged the prospect of a hike in the official cash rate by mid-2010 – earlier than previously anticipated. The kiwi dollar fell below 70 US cents for the first time in three months after the release and recently traded at 69.80 cents.

“It’s a little lower than the market forecast for the third quarter and the currency is reacting,” said Andrew Michl, who helps oversee $3 billion in New Zealand cash and fixed interest at ING New Zealand. “It maybe pushes market expectations for interest rate increases out a bit further.”

ING expects Bollard will be ready to raise the OCR from a record low 2.5% in mid-2010 though some investors have been betting on an increase as early as March. Michl said “global influences” have been moving the kiwi dollar as much as local data.

Manufacturing slid 1.9% in the third quarter while construction declined 4.4%, leading a 2.5% drop in goods-producing industries, today’s report showed. Business investment fell 0.9%.

Household spending, which accounts for almost two thirds of the economy, grew 0.8% in the latest three months.

Exports of goods and services were unchanged in the third quarter, after climbing 4.7% in the second three months of the year. Import volumes declined 0.7%, paced by a drop in plant and machinery. By contrast, imports of passenger vehicles jumped 18.6%.

Activity in primary industries rose 3.9%, led by fishing, forestry and mining. Agricultural activity rose 0.9% as increased sheep and wool production was offset by a decline in milk output.

The GDP deflator rose 2% in the year ended September 30.

Supports are returning for the New Zealand economy. Net long-term migrants flowed into New Zealand at the fastest pace in five years in the 12 months ended in November, according to government figures this week. Migrants’ demand for housing helped stoke the last property boom. The 20,000 that ‘arrived’ in the latest year were mainly kiwis deciding to stay at home.

Dairy farmers will be paid $6.05 per kilogram of milk solids in 2010, Fonterra confirmed last month. Prices have leaped forward in Fonterra’s monthly online milk powder auctions, whose price is to form the benchmark for the NZX’s futures contract next year.

Credit card billings rose 1.6% last month from a year earlier, according to central bank figures this week.

March quarter average unemployment will peak at 6.7% in 2010, retreating to 6.3% in 2011, according to the December Monetary Policy Statement.

Businesswire.co.nz

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