Strong 2013 finish picked for economy

Dominick Stephens
Dominick Stephens
Economists are picking a strong economic finish for 2013, with gross domestic product (GDP) for the quarter to December expected at 0.9%, when Statistics New Zealand data is released tomorrow.

While the effects of the 2013 drought are expected to be gone from the last quarter data and the dairy rebound and Canterbury construction are in the driving seats, economic reaction to the Reserve Bank's rising official cash rate will be the focus for many.

Reflecting the strong GDP data expected in the Westpac McDermott Miller consumer confidence index released yesterday, it rose to 121.7 in March, up slightly from 120.1 from the December survey, and was the highest reading since March 2005, when it was 126.7.

Westpac chief economist Dominick Stephens said economic optimism among New Zealand consumers had risen to levels last seen at brief points during the mid-1990s and mid-2000s.

''Clearly, there is now a consensus out there that the combination of a construction boom and export prices at multidecade highs is a sweet spot for the New Zealand economy,'' he said in a statement.

ASB chief economist Nick Tuffley said that unlike the previous quarter, he expected growth during the fourth quarter would be broadly based across the sectors, with construction, stronger household spending and a recovery in business investment to probably all be underpinning the New Zealand economy during the next two years.

He expected the December quarter to show ''continued robust growth'' of 0.9% in the economy, following the 1.4% rebound in the previous quarter. However, unlike the previous quarter when growth was concentrated in the agriculture and primary manufacturing sectors, and reflected recovery from the previous summer's drought, Mr Tuffley expected growth would be ''fairly spread'' across most economic sectors. Stronger construction activity from the Canterbury rebuild and house-building demand in Auckland was flowing through to stronger demand in other sectors.

''In particular, manufacturing activity has benefited from the lift in construction. Higher construction activity has also seen stronger demand for professional services such as engineering consulting,'' he said.

Mr Tuffley noted retail sales had continued to improve in the final quarter of 2013 as the recovering labour market and higher house prices supported stronger consumer confidence. Westpac economist Michael Gordon estimated the country's current account deficit would have narrowed to 3.3% of gross domestic product during the year to December, from 4.1% in the year to September.

''If so, this would be the biggest one-quarter improvement in the deficit on record outside of a recession,'' Mr Gordon said.

The main factor behind this was an ''almost unprecedented jump in export volumes'', or about 10% in seasonally adjusted terms.

''Although milk production had returned to its pre-drought trend by the September quarter, shipments of dairy exports didn't follow suit until the December quarter.

''In addition, there was a strong lift in exports of meat and manufactured goods, both of which had softened over the previous two quarters,'' Mr Gordon said.

BNZ chief economist Craig Ebert said unless the data provided an unexpected and ''monumental clanger'', the markets would take little notice, ''instead remaining intently focused on how the economy is going to react to the process of OCR normalisation now under way''.

The gross domestic product data premium would be in the upcoming business and sentiment surveys, and anything else which might seem exposed to rising interest rates, which included house prices, Mr Ebert said.

- simon.hartley@odt.co.nz

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