N.Z. Economic Growth Accelerates to Fastest in Four Years

Construction in Auckland
A worker labors on a house under construction in the suburb of Hobsonville Point in Auckland. Construction fell for the first time in 10 quarters, as a decline in civil engineering projects offset increased home building. Photographer: Brendon O'Hagan/Bloomberg

New Zealand’s economic growth accelerated to the fastest pace in almost four years in the third quarter, strengthening the case for the Reserve Bank to start raising interest rates next year.

Gross domestic product increased 1.4 percent from the second quarter, when it rose a revised 0.3 percent, Statistics New Zealand said in Wellington today. That’s the biggest gain since the final quarter of 2009 and better than the 1.1 percent median forecast of economists in a Bloomberg survey. From a year ago, the economy grew 3.5 percent, the most in six years.

New Zealand is set to become the first developed economy to start raising interest rates as surging milk production, manufacturing and home building fuel faster growth, stoking inflation. Central bank Governor Graeme Wheeler signaled last week he’ll lift the benchmark rate from a record-low 2.5 percent next year, even though it could drive unwelcome gains in the nation’s currency.

“The hiking cycle could well prove more dramatic than many expect,” Stephen Toplis, head of research at Bank of New Zealand Ltd. in Wellington, said before today’s data. “We are genuinely concerned that we will be faced with economic speed wobbles in the year ahead.”

New Zealand’s dollar initially rose on the report before resuming its decline in the wake of the U.S. Federal Reserve’s decision to start reducing stimulus. It bought 81.96 U.S. cents at 11:35 a.m. in Wellington.

Growth Revisions

Growth in the second quarter was revised from a previously reported 0.2 percent. New measures of telecommunications, spending by foreign visitors and construction were included in today’s release, lowering the pace of growth last years.

Annual growth in 2012 was revised to 2.6 percent from a previously reported 3.4 percent.

While a drought curbed farm output in the first half of this year, hampering growth, latest indicators show the economy is now building a head of steam.

Business confidence is close to a 15-year high and employers added 27,000 jobs in the three months ended Sept. 30, the most in more than six years, boosting consumer sentiment.

“Despite the worst drought for several decades earlier this year, New Zealand now has one of the faster growing developed economies in the world,” Finance Minister Bill English said in a statement.

Rate Increases

Eleven of 15 economists surveyed by Bloomberg this month said they expect Wheeler to raise the official cash rate in March.

The RBNZ on Dec. 12 forecast 1.1 percent growth for the third quarter and predicted the economy will expand at an annual pace of about 3 percent until early 2015, led by the NZ$40 billion ($33 billion) rebuild in Christchurch.

Earthquakes in the South Island city in 2010 and 2011 killed 185 people and destroyed houses, roads, shops and commercial buildings.

In the third quarter, farm output rose 17 percent, led by milk production. Output fell more than 10 percent in the first half of the year because of the drought.

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said this month that while milk volumes rose in the season ended Nov. 30, it can’t increase milk-powder production quickly enough to meet soaring demand from China and other emerging economies.

Manufacturing Gains

Manufacturing grew for the first time in three quarters, reaching a five-year high, led by food processing. Some of the production is being held as inventory rather than exported, the statistics agency said. Telecommunications and wholesale trading also increased.

Construction fell for the first time in 10 quarters, as a decline in civil engineering projects offset increased home building. Business services also dropped.

The expenditure measure of GDP rose 1.1 percent in the quarter, led by household spending and investment, today’s report showed. Exports, which make up 30 percent of the economy, fell, led by meat and dairy products, as imports rose.

Spending on durable goods such as furniture and vehicles contributed most to the gain in consumption, the statistics agency said. Purchases of services also rose.

Business spending increased, led by investment in plant and machinery. Residential investment surged 8.5 percent, the biggest gain since the third quarter of 2002.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE