Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Drought fears keep market reaction to strong GDP muted

Drought fears keep market reaction to strong GDP muted

By Paul McBeth

March 21 (BusinessDesk) - The impact of the worst drought in New Zealand's North Island for almost seven decades kept investors nervous after government figures showed the economy grew at its fastest quarterly pace in three years in the last three months of last year.

The New Zealand dollar gained about half a US cent, recently trading at 82.59 US cents, while swap rates rose about 5 basis points, with the two-year swap rate recently at 2.895 percent.

Those gains came after figures showed gross domestic product expanded 1.5 percent in the three months ended Dec. 31, almost twice the 0.8 percent pace predicted by the Reserve Bank, and the fastest quarterly pace since December 2009.

"The market is very concerned about drought - people overseas don't really understand drought and are very cautious," said Dominick Stephens, chief economist at Westpac Banking.

The Reserve Bank trimmed 0.2 to 0.3 of a percentage point from its growth forecasts in the first half of 2013 due to the drought, and the potential cost of the arid conditions has been put as high as $2 billion. The bank doesn't expect to raise interest rates until next year, with tepid inflation and a gradual economic recovery.

Traders are betting central bank governor Graeme Wheeler will add 21 basis points to the official cash rate over the coming 12 months, according to the Overnight Index Swap curve. They had priced in 17 basis points of increases yesterday.

Westpac's Stephens said the better than expected growth should make up for any downside built into the Reserve Bank's forecasts based on the drought.

"Basically the worst possible estimate of drought is fully covered by the GDP surprise," he said.

Darren Gibbs, chief economist at Deutsche Bank New Zealand, said the economic growth may bring the central bank's view on the future interest rate track closer to market expectations, though it won't have any obvious influence until the labour market improves and inflationary pressures start coming to bear.

"I'm very happy to see the economic growth in Q4, but I don't think too many people are re-writing their forecasts," Gibbs said.

The growth in December was underpinned by a 3.2 percent increase in primary sector activity to the sector's highest level since the series began in June 1987.

Stephens said the increased activity was part of the $30 billion Canterbury rebuild, which will have a "massive impact" on the economy, and came after a slowdown through the middle of last year.

Construction grew 1.8 percent in the December quarter, its fifth straight gain, on the strength of heavy and civil engineering. The sector has grown 6.1 percent annually, though is still below it speak in June 2010.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: Equity Crowd Funding Carries Risks, High Failure Rate

Equity crowd funding, which became legal in New Zealand this month, comes with a high risk of failure based on figures showing existing forays into social capital have a success rate of less than 50 percent, one new entrant says. More>>

ALSO:

Scoop Business: NZ Migration Rises To 11-Year High In March

The country gained a seasonally adjusted 3,800 net new migrants in March, the most since February 2003, said Statistics New Zealand. A net 400 people left for Australia in March, down from 600 in February, according to seasonally adjusted figures. More>>

ALSO:

Hugh Pavletich: New Zealand’s Bubble Economy Is Vulnerable

The recent Forbes e-edition article by Jesse Colombo assesses the New Zealand economy “ 12 Reasons Why New Zealand's Economic Bubble Will End In Disaster ”, seems to have created quite a stir, creating extensive media coverage in New Zealand. More>>

ALSO:

Thursday Market Close: Genesis Debut Sparks Energy Rally

New Zealand stock rose after shares in the partially privatised Genesis Energy soared as much as 18 percent in its debut listing on the NZX, buoying other listed energy companies in the process. Meridian Energy, MightyRiverPower, Contact Energy and TrustPower paced gains. More>>

ALSO:

Power Outages, Roads Close: Easter Storm Moving Down Country

The NZ Transport Agency says storm conditions at the start of the Easter break are making driving hazardous in Auckland and Northland and it advises people extreme care is needed on the regions’ state highways and roads... More>>

ALSO:

Houses (& Tobacco) Lead Inflation: CPI Up 0.3% In March Quarter

The consumers price index (CPI) rose 0.3 percent in the March 2014 quarter, Statistics New Zealand said today. Higher tobacco and housing prices were partly countered by seasonally cheaper international air fares, vegetables, and package holidays. More>>

ALSO:

Notoriously Reliable Predictions: Budget To Show Rise In Full-Time Income To 2018: English

This year’s Budget will forecast wage increases through to 2018 amounting to a $10,500 a year increase in average full time earnings over six years to $62,200 a year, says Finance Minister Bill English in a speech urging voters not to “put all of this at risk” by changing the government. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news