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N.Z. Growth Slows More Than Forecast, Adding to Rate Pause Case

N.Z. Growth Slows More Than Forecast
Yachts are moored in the Viaduct Harbor as the central business district stands in the background in Auckland. Photographer: Brendon O'Hagan/Bloomberg

New Zealand’s economic growth slowed to half the pace economists predicted in the fourth quarter as manufacturing fell, adding to the case for no change in interest rates until next year.

Gross domestic product rose 0.3 percent in the three months ended Dec. 31 from the previous quarter, when it increased a revised 0.7 percent, Statistics New Zealand said in a report released today in Wellington. The result compares with the 0.6 percent median projection in a Bloomberg News survey of 16 economists.

New Zealand’s dollar fell to the lowest level in a week as investors reduced bets that central bank Governor Alan Bollard will raise the official cash rate from a record-low 2.5 percent this year. The fifth straight quarterly expansion last quarter was half the growth the central bank had forecast, with spending tied to Rugby World Cup tourism and a surge in farm production helping prevent a bigger slowdown.

“We continue to look for a December start to the tightening cycle, but stress this is based on an assumption that economic momentum in the economy will pick up in the second half,” Mark Smith, an economist at ANZ National Bank Ltd. in Wellington, said in a research note.

New Zealand’s dollar fell as low as 81.01 U.S. cents from 81.32 cents immediately before the report. It bought 81.18 cents as of 12:11 p.m. in Wellington.

The chance of a quarter-point rate rise by December fell to 40 percent from 56 percent late yesterday, according to swaps prices from Westpac Banking Corp.

Annual Growth

The economy grew 1.8 percent from the year-earlier quarter, slower than the 2.2 percent estimated by economists and matching the revised pace in the third quarter.

Growth accelerated in the second half of last year, adding to the case for a steady recovery after earthquakes in the South Island city of Christchurch curbed domestic demand.

The city, the nation’s second biggest, and the surrounding Canterbury region were struck by quakes in September 2010 and another in February 2011 that killed 185, making the latter the nation’s deadliest temblor in eight decades. Bollard has held the nation’s benchmark borrowing cost since lowering it a half percentage point in March 2011.

Twelve of 14 economists expect no change in interest rates until the fourth quarter, according to a separate Bloomberg survey.

Bollard on March 8 signaled he may leave the benchmark rate unchanged until the end of the year because modest growth and the New Zealand dollar’s gain of about 10 percent in the past year are curbing inflation. He expects annual growth will accelerate to 3.3 percent by the end of 2012.

Farm Production Gains

In the fourth quarter, the production-based measure of GDP was led higher by farm production and output from the retail and hospitality industries amid spending by 133,000 foreign visitors and local fans on dining, accommodation and souvenirs around the Rugby World Cup, which ended Oct. 23. Output from manufacturing and government administration declined.

Farm production rose 3.5 percent on favorable weather conditions that led to increased milk production. Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said in December that milk collection was 8.4 percent higher than a year earlier. The Auckland-based company later said it loaded a record volume of products for overseas customers.

Retail, accommodation and restaurant activity rose 2.2 percent to a record in the quarter, today’s report showed. Construction rose for the first time in four quarters and there was increased output from finance and business services, led by advertising, the statistics agency said.

Consumption Patterns

Manufacturing fell 2.5 percent as meat slaughter slowed, the agency said. Output from the government fell the most in 13 years as less work was done on earthquake response in Christchurch.

Spending on furniture, appliances and other durable goods led a 0.8 percent gain in household consumption, the statistics agency said.

Investment increased 1.7 percent, led by a rebound in spending on residential buildings from an 18-year low in the previous quarter. Business investment in fixed assets rose, led by one-time purchases of transport equipment including military helicopters, the agency said.

Exports of goods, which make up 30 percent of the economy, gained 4.3 percent, as dairy shipments rose to a record, today’s report showed. Exports of services fell, led by transport services, countering a gain in spending by foreign visitors.

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