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


UPDATE: NZ economic growth keeps rate hike track intact

UPDATE: NZ economic growth keeps rate hike track intact

(Updates, adding economist comment)

By Paul McBeth

March 20 (BusinessDesk) - New Zealand’s pace of growth in the final three months of the year, underpinned by a booming manufacturing sector, won’t derail the Reserve Bank’s path to higher interest rates this year.

Gross domestic product grew 0.9 percent to a seasonally adjusted $38.3 billion in the three months ended Dec. 31, from a revised pace of 1.2 percent in the September quarter, according to Statistics New Zealand. That was in line with market expectations and slightly ahead of the Reserve Bank’s forecast of 0.8 percent growth in the quarter. Annual growth was 2.7 percent, and GDP was 3.1 percent higher than the same quarter a year earlier.

The pace of growth underpins signs the local economy is gathering momentum, which Reserve Bank governor Graeme Wheeler says is creating inflationary pressures that require a monetary policy response. He kicked off a tightening cycle this month, lifting the official cash rate a quarter-point to 2.75 percent and anticipates raising the OCR another 2 percentage points over the next two years.

“Most people continue to think we’ve got at least two more rate hikes ahead of us in April and June,” said Darren Gibbs, chief economist at Deutsche Bank in Auckland. “July is a bit more debatable and depends how the data pans out.”

The Reserve Bank’s forecast track for the 90-day bank bill rate, often seen as a proxy for the OCR, projects the rate rising to 4 percent by the end of 2014 and 5.3 percent by March 2017. Traders have priced in 119 basis points of rate hikes over the coming 12 months, and give a 92 percent chance of an increase at the April meeting, according to the Overnight Index Swap curve.

The kiwi dollar fell to 85.37 US cents from 85.61 cents immediately before the figures were released, and recently traded at 85.38 cents.

Deutsche Bank’s Gibbs said given the GDP number was largely what people were expecting, the steeper forecast track for US interest rates by the Federal Reserve will be weighing more heavily on traders.

Westpac Banking Corp chief economist Dominick Stephens and senior economist Michael Gordon said in a note the central bank will have to gradually raise interest rates this year as the economy gathers momentum on the strength of the Canterbury rebuild, house building activity in Auckland, and 40-year high terms of trade.

“As interest rates rise, we suspect that the housing market will slow, consumer buoyancy will gradually diminish, and eventually, GDP growth will slow. But this is a process that could take years,” they said.

Today’s figures show manufacturing grew 2.1 percent to $5.15 billion in the quarter, its highest level since March 2006, and accelerating from 1.6 percent expansion in the September quarter. The BNZ-BusinessNZ performance of manufacturing index has shown activity has been expanding for the 18 months through to February.

Dairy production fell in the quarter as inventories were run down $18 million in the period, though other food, beverage and tobacco manufacturing made up for the shortfall. Transport equipment, machinery and equipment manufacturing grew 6.2 percent in the period.

Wholesale trade grew 3.2 percent to a seasonally adjusted $2.13 billion with machinery and equipment wholesaling the major contributor to the gain.

New Zealand’s primary industries grew 0.3 percent led by a 9.5 percent expansion in mining driven by exploration activity, while agriculture shrank 1.6 percent, forestry contracted 0.6 percent and fishing declined 0.7 percent.

Business services shrank 2.1 percent in the quarter, driven by slowing architectural and engineering, which has been at elevated levels in recent quarters to help prepare the $40 billion rebuild of Christchurch.

Other sectors to shrink in the quarter were information, media and telecommunications services, down 0.6 percent, and arts, recreation and other services, which fell 0.9 percent. All service industries grew 0.3 percent in the quarter.

Construction activity grew 0.4 percent in the quarter as investment in infrastructure made up for largely flat spending on residential housing and a decline in non-residential work. Investment in residential housing increased 0.1 percent to $1.75 billion in the quarter, while non-residential building fell 4.6 percent $853 million. Investment in other construction grew 8.8 percent to $1.08 billion.

Business investment, which strips out spending on residential property, grew 0.9 percent to $8.33 billion. Gross fixed capital formation rose 0.4 percent to $9.79 billion.

The expenditure measure of GDP grew 0.6 percent, lagging the 0.8 percent growth forecast in a Reuters survey of economists. The annual measure of GDP expenditure grew 2.5 percent. Household spending underpinned the quarterly gain, up 1.3 percent, led by expenditure on durable goods. Central government expenditure shrank 0.6 percent in the quarter.

Real gross national disposable income rose a seasonally adjusted 3.3 percent in the quarter.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Oceans: NOAA Declares Third Ever Global Coral Bleaching Event

As record ocean temperatures cause widespread coral bleaching across Hawaii, NOAA scientists confirm the same stressful conditions are expanding to the Caribbean and may last into the new year, prompting the declaration of the third global coral bleaching event ever on record. More>>

Scoop Business: A Decade Of Government Pre-Seed Investment

More publicly-funded science is being commercialised after a decade of government ‘pre-see’d investment, according to an independent review. More>>


Solid Energy: Plan To Shut Unprofitable Huntly East Mine

Solid Energy, the state-owned coal miner in voluntary administration, plans to shut down its unprofitable Huntly East mine and lay off 65 staff after deciding the site stands "no chance whatsoever" of finding a buyer. More>>


E Tū: Merger Creates NZ's Biggest Private Sector Union

E tū has been created by the merger of the Engineering, Printing and Manufacturing Union and Service and Food Workers’ Union. It represents more than 50,000 working New Zealanders in industries as diverse as aviation, construction, journalism, food manufacturing, mining and cleaning. More>>


Internet: NZ Govt Lifts Target Speeds For Rural Broadband

The government has lifted its expectations on faster broadband speeds for rural New Zealand as it targets increased spending on research and development in the country's information and communications technology sector, which it sees as a key driver for export growth. More>>


Banks: Westpac Keeps Core Government Transactions Contract

The local arm of Westpac Banking Corp has kept its contract with the New Zealand government to provide core transactions, but will have to share peripheral services with its rivals. More>>


Science Investment Plan: Universities Welcome Statement

Universities New Zealand has welcomed the National Statement of Science Investment released by the Government today... this is a critical document as it sets out the Government’s ten-year strategic direction that will guide future investment in New Zealand’s science system. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news