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

 

Media: Julian Wilcox Leaves Māori TV

Māori Television has confirmed the resignation of Head of News and Production Julian Wilcox. Mr Maxwell acknowledged Mr Wilcox’s significant contribution to Māori Television since joining the organisation in 2004. More>>

ALSO:

Genetics: New Heat Tolerant Cow Developed

Hamilton, New Zealand-based Dairy Solutionz Ltd has led an expert genetics team to develop a new dairy cow breed conditioned to thrive in lower elevation tropical climates and achieve high milk production under heat stress. More>>

Fractals: Thousands More Business Cards Needed To Build Giant Sponge

New Zealand is taking part in a global event this weekend to build a Menger Sponge using 15 million business cards but local organisers say they are thousands of business cards short. More>>

Scoop Business: NZ Net Migration Rises To Annual Record In September

New Zealand’s annual net migration rose to a record in September, beating government forecasts, as the inflow was spurred by student arrivals from India and Kiwis returning home from Australia. More>>

ALSO:

Scoop Business: Fletcher To Close Its Christchurch Insulation Plant, Cut 29 Jobs

Fletcher Building, New Zealand’s largest listed company, will close its Christchurch insulation factory, as it consolidates its Tasman Insulations operations in a “highly competitive market”. More>>

ALSO:

Scoop Business: Novartis Adds Nine New Treatments Under Pharmac Deal

Novartis New Zealand, the local unit of the global pharmaceuticals firm, has added nine new treatments in a far-ranging agreement with government drug buying agency, Pharmac. More>>

ALSO:

Crown Accounts: English Wary On Tax Take, Could Threaten Surplus

Finance Minister Bill English is warning the tax take may come in below forecast in the current financial year, as figures released today confirm it was short by nearly $1 billion in the year to June 30 and English warned of the potential impact of slumping receipts from agricultural exports. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand

Mosh Social Media
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news