New Zealand Economic Growth Lags Forecast; Currency Declines
New Zealand’s economic growth unexpectedly weakened even before the nation’s worst earthquake in eight decades crippled infrastructure in the south of the country. The local currency snapped a four-day rally.
Gross domestic product increased 0.2 percent in the second quarter from the previous three months, less than the 0.7 percent median estimate in a Bloomberg News survey of 12 economists and the 0.9 percent forecast by the central bank, Statistics New Zealand figures showed in Wellington today.
The report adds to the case for central bank Governor Alan Bollard to keep borrowing costs unchanged until next year after he paused in raising interest rates last week. Growth missed forecasts last quarter as drought curbed milk production and manufacturing slumped, led by a record decline in output from dairy plants and other food processors.
“It validates the Reserve Bank of New Zealand’s approach to play it cool for a while and try to pick up the threads of what’s going on over the coming months,” said Craig Ebert, senior market economist at Bank of New Zealand in Wellington, whose prediction of 0.5 percent growth was the most accurate of the analysts surveyed by Bloomberg.
New Zealand’s dollar declined to 73.19 U.S. cents at 12.15 p.m. in Wellington from 73.63 cents just before the release.
Farm production declined 2.1 percent in the second quarter after Waikato province, the nation’s biggest milk producing region, was declared a drought zone in April. Manufacturing slumped 4 percent, led by a decline in output from dairy plants, the statistics agency said.
Even so, Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said today that full-year exports rose to a record as global prices gained, and raised its forecast for the minimum milk payment for farmers.
There are signs that international dairy supply and demand are “moving more in balance at prevailing prices” amid international market volatility, Chief Executive Officer Andrew Ferrier said in a statement.
Bollard on Sept. 16 kept the official cash rate at 3 percent and said the pace of further increases was likely to be more moderate. The central bank last week lowered its growth forecasts, citing falling home sales and consumer borrowing.
Annual average growth will be 2.6 percent this year, down from 3.1 percent forecast in June, the bank said. The expansion will slow to 2.5 percent in 2011, it said.
Those projections excluded the impact of the magnitude 7 earthquake that struck the Canterbury region on the nation’s South Island on Sept. 4. The temblor “significantly disrupted economic activity” and will likely reduce growth in the third quarter before bolstering demand next year as houses, commercial buildings and infrastructure are repaired, Bollard said Sept. 16.
The economy grew 1.9 percent in the second quarter from a year earlier, less than the 2.5 percent median estimate in the Bloomberg survey. Annual average growth, a measure forecast by the central bank, was 0.7 percent, today’s report showed.
On a quarterly basis, GDP rose a revised 0.5 percent in the first quarter of this year.
Exports increased 1.3 percent from the first quarter, led by food, lumber, paper and machinery. Companies exported goods produced in previous periods, leading to a decline in inventories, the agency said. Imports were buoyed by purchases of passenger cars and a navy ship.
Residential investment increased 11 percent, the most in almost eight years, today’s report showed. Spending on mineral exploration and non-residential building also buoyed growth. Outlays on factories and equipment declined.
Consumer spending was unchanged, following four quarters of growth. Purchases of furniture, appliances and other durable goods increased but services spending fell amid lower demand for air travel, telephone calling and medical visits. Sales of food, liquor and non-durables were unchanged.
Ian Morrice, chief executive officer of Warehouse Group Ltd., New Zealand’s biggest discount retailer, said this month the outlook for consumer demand “will remain patchy” in the next 12 months.
“Picking a trend in consumer confidence is difficult in the short term, but we do expect in the medium to long term the gradual recovery will continue,” he said in a Sept. 10 conference call.
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