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NZ economy tipped to expand

NZ Newswire logoNZ Newswire 11/06/2017 Rebecca Howard
Construction work in NZ © Bloomberg Construction work in NZ

New Zealand's economy likely continued to expand in the first quarter of this year as output in the primary industries recovered and strong population growth continued to spur the services sector, helping offset weaker construction output.

The median in a Reuters poll of 11 economists forecast gross domestic product expanded 0.7 per cent in the three months ended March 31 for an annual pace of 2.7 per cent. The central bank is forecasting quarterly growth of 0.9 per cent. New Zealand's economy grew 0.4 per cent in the fourth quarter of 2016 while the annual pace was also 2.7 per cent.

"Poor spring weather certainly hampered agricultural production late last year, and more favourable conditions should see that reverse," said ANZ Bank senior economist Phil Borkin.

Westpac acting chief economist Michael Gordon says growth in the December quarter was hurt by a pullback in milk production in response to low dairy prices and a temporary shutdown of the Maari oil platform.

"Both of these factors have since unwound, and accordingly we expect strong contributions to growth from the agriculture and mining sectors," he said.

Both economists, however, pointed to the construction sector as weighing on growth.

Recent data showed the value of New Zealand residential building work inched higher in the March quarter but total building values fell, weighed on by a sharp fall in non-residential construction.

ASB Bank senior economist Jane Turner says even if the first quarter growth is close to her forecast of 0.5 per cent and of concern to the central bank "there is no urgency for rate hikes."

In May the central bank kept rates on hold at 1.75 per cent and stuck to its forecasts that point to a rate hike in September 2019.

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