Activity in Christchurch is playing a large role in New
Zealand's economic growth. Photo by Stephen Jaquiery.
Doubts about the stimulatory effect of the Christchurch
rebuild on the economy will now be dispelled after a strong
economic growth in the three months ending December, Westpac
chief economist Dominick Stephens says.
The December gross domestic product (GDP) economic growth was
1.5% after just 0.2% in September. The data was much stronger
than the Reserve Bank or other economists had forecast and
stronger than Westpac's top-of-the-market pick of 1.2%, he
''Growth was very broad-based. Significantly, the service
sectors had their strongest quarter in six years. This is a
significant development. Markets have long doubted the
stimulatory effect of the Canterbury rebuild. Those doubts
will now be dispelled.''
To put it into perspective, the surprise to the Reserve Bank
from yesterday's release from Statistics New Zealand was
equivalent to the maximum negative impact it could
''reasonably'' build in for drought, Mr Stephens said.
''We feel this data is a step towards backing our call for
earlier and more aggressive official cash rate hikes than the
market is currently pricing.''
The Canterbury rebuild amounted to a huge stimulus for the
economy, he said.
Westpac had long expected it to provoke a high rate of GDP
growth, inflation and eventually, interest rate hikes. The
first phase of the process was now confirmed, Mr Stephens
Council of Trade Unions economist Bill Rosenberg acknowledged
the latest economic growth but said jobs were still missing
from the equation. Growth was still patchy. One-quarter of
strong 1.5% growth did not make for a ''booming economy''
when, at the same time, there was 6.9% unemployment.
There were still 163,000 people unemployed and 284,000
jobless - with many people discouraged from finding work -
and 111,000 wanting more work.
The growth in the economy also implied increasing labour
productivity which should lead to higher wages, if wage
bargaining was working properly, Mr Rosenberg said.
''But we are not seeing the growth in GDP flowing through
into pockets through jobs or incomes. Worries about
manufacturing will continue after these results.''
BNZ research head Stephen Toplis said it was true that while
GDP appeared to be going from strength to strength, as yet,
there was no labour market response. But the fourth quarter
figures were further support for his view that it was just a
matter of time.
''On the down side, the drought will throw a spanner in the
works. It's difficult to gauge exactly the impact of this but
we think it could yet knock more 1% off GDP when all is said
Ironically, the heightened starting point created by
yesterday's strong result increased the likelihood of a
recession in the future.
''But to look at the economy in this light misses the point.
What the higher starting point also means is that we can now
afford a couple of surprisingly low quarters and yet still
have activity levels as robust as we have been forecasting.
In this regard, it reduces the likelihood that the central
bank might feel the need to lower interest rates,'' Mr Toplis
Finance Minister Bill English was optimistic about the
future, saying indications were that growth would continue
this year as consumer and business confidence rose. A lift in
household spending signalled that people were feeling more
secure and optimistic.
New Zealand was still performing better than most other OECD
countries, he said. New Zealand's GDP growth of 3% in 2012
compared with 1.6% in the United States, 1.1% in Canada, 0.4%
in Japan, 0.3% in the United Kingdom and -0.9% in the euro
• December quarter GDP 1.5%, Reserve Bank
forecast 0.8%. September GDP 0.2%. Annual GDP 3%.
• December results driven by robust increases in
retail trade, financial and insurance services and recreation
and other services. Stronger housing market activity is
supporting a further recovery in residential investment.