New Zealand Economy Slows as Drought Hurts Farms; Kiwi Drops
New Zealand’s economic growth slowed more than forecast last quarter as the nation’s worst drought in 30 years curbed farm output, sending the currency lower.
Gross domestic product rose 0.3 percent in the three months ended March 31 from the previous quarter, when it expanded 1.5 percent, Statistics New Zealand said in a report today in Wellington. Growth was slower than the 0.5 percent median estimate in a Bloomberg News survey of 11 economists.
The central bank last week estimated the drought’s impact on milk collection and livestock slaughtering will curb growth by 0.5 percentage point in the six months through June. The economy is then predicted to pick up, buoyed by rebuilding in earthquake-damaged Christchurch, which may prompt Reserve Bank Governor Graeme Wheeler to start raising interest rates.
“We expect strengthening base momentum to eventually flow through into core inflation,” Mark Smith, senior economist at ANZ Bank New Zealand Ltd. in Wellington, said in an e-mailed note. “The current lack of pricing pressure suggests no immediate need for the RBNZ to raise the official cash rate.”
New Zealand’s dollar fell, buying 78.66 U.S. cents as of 11:28 a.m. in Wellington from 78.88 cents immediately before the data.
The economy expanded 2.4 percent in the first quarter from the year-earlier period, the report showed. Economists predicted 2.5 percent.
The central bank on June 13 estimated the economy grew 0.5 percent in the quarter, and 2.4 percent year-on-year. It projected annual growth will accelerate to 3.6 percent by the second half of 2014, led by the NZ$40 billion ($31.4 billion) rebuild in the South Island city of Christchurch, where houses, roads, shops and commercial buildings were destroyed by earthquakes in 2010-11.
Wheeler last week kept the official cash rate at a record-low 2.5 percent and said he expected to leave borrowing costs unchanged until next year, citing benign inflation and a reluctance to push the currency higher. Thirteen of 14 economists surveyed by Bloomberg News expect he will raise the rate by March 31.
Farm output fell 4.7 percent in the quarter, largely due to lower milk production, the statistics agency said. Cattle slaughter numbers increased.
New Zealand in March declared a drought across the entire North Island including the province of Waikato, its biggest milk producing region. Milk collection in the six months through May fell 8.9 percent from the year earlier period, according to Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter.
“We expect the drought will impact on the economy for several quarters, as lower herd numbers and conception rates will affect future production,” GDP Project Manager Jason Attewell said in a statement.
Construction gained 5.5 percent due to residential building and construction services, today’s report showed. Earthquake rebuilding is accelerating after it had been delayed by aftershocks, issues over insurance and identification of which land was no longer suitable to rebuild homes on because of unstable soil. Increased architectural and engineering work in Christchurch added to growth, the agency said.
Manufacturing increased in the quarter as livestock slaughter boosted output from meat processors. Metal product manufacturing fell as Rio Tinto Group (RIO) reduced output at its South Island aluminum smelter, and this also led to lower demand for electricity and a drop in generation, the agency said.
The expenditure measure of GDP advanced 0.3 percent in the quarter, led by household spending and investment, today’s report showed.
Spending on non-durable goods such as food and beverages contributed most to the rise in consumption, the statistics agency said. Purchases of audio-visual equipment and furniture boosted durable goods spending.
Residential housing investment gained the most since the third quarter of 2002, led by demand in Christchurch. Business spending on plant, machinery and equipment fell, the agency said.
Exports, which make up about 30 percent of the economy, rose 2.5 percent, led by overseas shipments of meat and dairy products, the data showed. Spending by tourists also increased. Imports gained 2.8 percent in the quarter.
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