N.Z. Grows at Fastest Pace in 3 Years on Christchurch Work

New Zealand’s economy grew at the fastest pace in three years last quarter, led by retailing and the rebuilding of earthquake-damaged Christchurch city, sending the local dollar higher.

Gross domestic product rose 1.5 percent in the three months ended Dec. 31 from the previous quarter, when it expanded 0.2 percent, Statistics New Zealand said in a report released today in Wellington. Growth exceeded the 0.9 percent median estimate in a Bloomberg News survey of 10 economists and was almost twice the central bank’s 0.8 percent forecast.

The economy’s rebound was driven by increased spending on heavy equipment and consumer durables. Central bank Governor Graeme Wheeler said last week he expects to keep the official cash rate at a record-low 2.5 percent until 2014 as the nation’s worst drought in 30 years and a strong currency counter the stimulus from Christchurch’s reconstruction.

“This data is a step towards backing our call for earlier and more aggressive OCR hikes than the market is currently pricing,” Dominick Stephens, chief New Zealand economist at Westpac Banking Corp. in Auckland, wrote in a research note. “That said, we do not expect a repeat of this extremely high growth rate over the coming quarters, as it was partly payback for the weak growth experienced in mid-2012.”

New Zealand’s dollar rose against the U.S. currency after the data. It bought 82.62 U.S. cents as of 11:25 a.m. in Wellington from 82.27 cents immediately before the data.

‘Big Handbrakes’

Growth is predicted to slow in the first-half of 2013 as dry conditions in the North Island, including the biggest dairying region, curb milk collection and hurt farm spending.

“The drought and the ongoing high exchange rate are big handbrakes,” Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington, said ahead of the report. BNZ last week lowered its forecast for first-half growth, citing the worsening dry conditions.

The economy expanded 3 percent in the fourth quarter from the year-earlier period, the report showed. That’s faster than the 2.3 percent growth estimated by economists and the quickest since the three months ended June 30, 2010. Year-on-year growth accelerated from 1.9 percent in the third quarter.

Quarterly growth was the strongest since the three months ended Dec. 31, 2009, the statistics agency said.

Drought Drag

A drought declared across the entire North Island including Waikato province, the country’s biggest milk producer, will cost the economy NZ$2 billion ($1.7 billion) as the dry conditions slow growth, the government estimated last week. Wheeler said March 14 the drought trimmed as much as 0.3 percentage point off the Reserve Bank of New Zealand’s previous projections for growth in the first half.

“It will have some longer-run impact on dairy prices, pushing prices up that will offset some of the losses from reduced production,” Finance Minister Bill English said in a Bloomberg Television interview yesterday. “It may mean a bit less pressure for interest rates to rise.”

Whole milk powder prices rose to a record at an auction yesterday, according to Fonterra Cooperative Group Ltd., the world’s largest dairy exporter.

In the quarter, construction rose 1.8 percent, led by heavy engineering, as rebuilding began in Christchurch, the country’s third-largest city which was devastated by a series of earthquakes in 2010-11, today’s report showed.

Farm Output

Retailing increased 2.5 percent, the most since the first quarter of 2007, led by so-called durable goods such as furniture and appliances. Farm production gained 1.5 percent in the quarter even as dairy output fell, today’s report showed.

Forestry production surged 9 percent, the biggest gain since 1999, the statistics agency said. Manufacturing declined.

The expenditure measure of GDP advanced 1.4 percent in the quarter, led by household consumption and exports, today’s report showed.

Spending on durable goods such as appliances and used cars contributed most to the largest rise in consumption in six years, the agency said. Exports, which make up about 30 percent of the economy, rose 0.9 percent, led by overseas shipments of logs, the data showed. Imports fell 2 percent.

Investment rose as businesses bought more fixed assets, primarily plant and equipment, the report showed. Residential housing investment gained for a sixth straight quarter, led by demand in Christchurch.

(Updates with economist quote in fourth paragraph.)
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