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New Zealand fourth quarter slower than expected on exports, but seen recovering

Reuters logo Reuters 16/03/2017

Houses can be seen on the hillside behind a rower and motor-boat as they pass a container ship as it sails into Oriental Bay in the New Zealand capital city of Wellington, New Zealand© REUTERS/David Gray/File Photo Houses can be seen on the hillside behind a rower and motor-boat as they pass a container ship as it sails into Oriental Bay in the New Zealand capital city of Wellington, New Zealand New Zealand’s economy grew less than expected in 2016's final quarter and that might flag weaker expansion this year, but most economists see recent headwinds as temporary and likely to ensure the central bank keeps rates at a record low.

Statistics New Zealand said on Thursday gross domestic product rose 0.4 percent in October-December from the previous three months.

That was below a Reuters poll forecast of 0.7 percent and the slowest growth since the quarter ended in June 2015. The miss was mostly due to heavy spring rain that cut pivotal dairy production and exports.

On an annual basis, fourth-quarter growth was 2.7 percent, lower than the poll forecast's 3.1 percent and notably below the Reserve Bank of New Zealand's prediction for annual expansion of 3.7 percent in the current quarter.

"We are likely to be growing at a slower rate compared to the reserve bank’s forecasts over 2017," said Zoe Wallis, chief economist at Kiwi Bank.

But she said there's still "reasonably strong" growth and "the things that are driving the economy are still expected to drive it in the coming year."

Thursday's data reinforces the view that interest rate hikes "are quite some way away", Wallis added.

RATE HOLD EXPECTED

On March 23, the RBNZ hold a policy meeting, at which it is expected to keep the key rate (NZINTR=ECI) at a record low 1.75 percent.

The growth rate should reinforce thinking in RBNZ that "things are uncertain and when things are uncertain we'd rather do nothing," ANZ Bank senior economist Phil Borkin said.

In October-December, exports were hit hard by a 7.5 percent fall in production from the previous quarter for dairy, New Zealand's top commodity. Traditionally volatile manufacturing, mining and forestry exports also fell.

Economists attributed a surprise drop in transport expenditure, which contracted 0.7 percent from July-September after expanding 3.7 percent in the previous three months, to November's 7.8 magnitude earthquake centred near Kaikoura, a popular tourist area.

Wallis said there's still a "very strong construction industry, that’s the main backbone of growth in the New Zealand economy at the moment".

Strong migration flows underpinning the home building boom are seen continuing, household spending also rose, along with tourist which jumped 5.1 percent for the quarter for the previous three months.

For all of 2016, New Zealand grew 3.1 percent, higher than the previous year's 2.5 percent.

Statistics New Zealand revised third-quarter growth to 0.8 percent from the prior three months, down from 1.1 percent.

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