New Zealand Growth Probably Quickened in Second Quarter Before Earthquake

New Zealand’s household spending probably helped the nation’s economic expansion accelerate last quarter before the biggest earthquake in 80 years hit growth.

Gross domestic product rose 0.7 percent in the three months through June from the previous quarter, according to the median of 12 estimates in a Bloomberg News survey before the report due in Wellington tomorrow. The economy expanded 0.6 percent in the first quarter.

Central bank Governor Alan Bollard stopped raising interest rates last week and said the Sept. 4 quake “significantly disrupted economic activity and is likely to continue to do so for some time yet.” Growth was probably boosted as people bought items before the increase of a goods and services tax, said Helen Kevans of JPMorgan Chase & Co. in Sydney.

“The main driver of growth will be household consumption, with retail sales volumes having surged 1.3 percent quarter on quarter,” said Kevans, a senior economist. “Consumers spent heavily in the second quarter following confirmation in May that the government will hike the GST on Oct. 1.”

Bollard raised the official cash rate in June, the first increase in three years, and said he expected to gradually remove stimulus as exports buoy the recovery and inflation pressures build. He increased borrowing costs to 3 percent on July 29, while saying the economic outlook had moderated.

Photographer: Mark Coote/Bloomberg

Alan Bollard, governor of the Reserve Bank of New Zealand. Close

Alan Bollard, governor of the Reserve Bank of New Zealand.

Close
Open
Photographer: Mark Coote/Bloomberg

Alan Bollard, governor of the Reserve Bank of New Zealand.

Local Currency

New Zealand’s dollar fell this week to the lowest level in almost five months against Australia’s currency on speculation the larger nation’s central bank will increase rates, while Bollard will keep them unchanged. The so-called kiwi touched NZ$1.3015 on Sept. 21, the weakest since April 23.

Two of 10 economists surveyed by Bloomberg after last week’s decision forecast Bollard would move again this year. There is a 2 percent chance of a quarter-point increase at the Oct. 28 review, according to a Credit Suisse index based on swaps trading.

Ian Morrice, chief executive officer of Warehouse Group Ltd., the nation’s biggest discount retailer, said earlier this month that he expects that “in the medium to long term the gradual recovery will continue, but it’s likely in the next 12 months demand will remain patchy.”

Manufacturing sales volumes slumped to a 10-year low in the second quarter, according to a Sept. 9 government report. Production was led lower by seafood, fruit, meat, dairy and textiles, adding to signs that global demand for some commodity exports has slowed.

Economic Impact

The central bank said last week the earthquake in the South Island city of Christchurch may cut growth by 0.3 percentage point this quarter.

The quake “shook consumers and thwarted business production,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. “To shore up confidence and support recovery in the face of coming headwinds, the Reserve Bank of New Zealand will now leave interest rates on hold for the rest of 2010.”

Shops and factories closed after the magnitude 7 temblor hit, cutting power, damaging more than 100,000 homes and severing water and sewage lines in and around New Zealand’s second-largest city. Rebuilding from the earthquake may stoke economic growth, supporting the case for a resumption in rate increases.

A preliminary analysis of the impact shows that reconstruction will start to buoy the economy from the fourth quarter, and may add as much as 1 percentage point to annual average growth in the year through March 2012, according to the central bank.

Prime Minister John Key’s government will also deliver a boost to the economy with income tax cuts on Oct. 1 that will match the increase in sales tax.

To contact the reporters on this story: Michael Heath in Sydney at mheath1@bloomberg.net; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.