Positive signs for GDP growth

By Phil Boeyen, ShareChat Business News Editor

Friday 14th September 2001

New Zealand's gross domestic product is predicted to have bounced back in the June quarter compared with the start of the year.

Deutsche Bank says following Thursday's manufacturing survey, which was much stronger than it expected, it believes GDP will have grown by 1.6% in the three months to the end of June. The forecast assumes that GDP in the first three months of the year is not revised substantially.

"This growth represents a very substantial bounce-back from the flat outcome recorded in Q1, which was driven, in particular, by a significant weakening in plant and machinery investment," says senior economist, Darren Gibbs.

Mr Gibbs says indicators point to a very strong rebound in plant and machinery investment in Q2, complementing broad-based growth across the economy.

"Taking into account the negative impact of the electricity crisis, we think that the current growth `pulse' is of the order of 0.8% quarter-on-quarter - above the economy's potential growth rate."

GDP data is due to be release just a few days before the Reserve Bank's next interest rate review on October 3.

"An outcome of this magnitude will allay any remaining RBNZ concerns about the weak Q1 GDP outcome and will demonstrate that the domestic economy is exhibiting surprising - yet explainable - resilience in the face of widespread global economic weakness," says Mr Gibbs.

"However, medium-term growth prospects have become much more uncertain over recent weeks, both due to the general trend of global economic data and as a result of the events in the United States on 11 September."

The bank is now picking a 25-point interest rate drop in October.

In GDP terms, Deutsche Bank says there has been strong growth in both dairy and meat production in the second quarter, and increase forestry production.

Downstream agriculture manufacturing will also improve, with strong domestic demand boosting non-primary production.

Non-residential construction is predicted to have risen sharply but residential construction will be flat.

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