Figures should show economy growing

Data on Wednesday and Thursday is expected to provide more indications of the strength of the New Zealand economy, with the expectation of economic growth of 3.8% for the year ended March.

On Wednesday, Statistics NZ will release its current account data, followed on Thursday by GDP, or gross domestic product, the measure of economic growth for a country.

Westpac senior economist Michael Gordon says it had been clear for some time the New Zealand economy started the year with a great deal of momentum.

The national accounts published this week should provide final confirmation of the growth.

''We expect a 1.2% increase in GDP for the March quarter, led by a sharp upward burst in construction.''

Record-high commodity export prices, and a rebound in volumes, had greatly improved the trade balance over the last year and Westpac expected the current account deficit to narrow further to 2.8% of GDP, he said.

Economic growth was measured at 1.2% in December and 0.9% last September. Barring any downward revisions to recent history, the New Zealand economy's annual average growth rate would top 3% for the first time since 2007, before the Global Financial Crisis hit.

An upturn in building activity in both earthquake-hit Canterbury and elsewhere had long been a key theme in growth forecasts, Mr Gordon said.

''This theme came through with a vengeance in the March quarter, with a record 16% rise in building work - perhaps, in part, a catch-up after some surprisingly soft results for construction sector GDP in the previous two quarters.''

Mr Gordon had assumed a more modest increase and estimated the construction sector accounted for about half of the rise in the March quarter.

The rest of the gains were expected to be widely dispersed, as was typically the case in an economic upswing.

Even areas where a decline was expected - such as wholesale trade, food and beverage manufacturing and mining - largely reflected a reversal of outsized gains in the December quarter, rather than any signs of emerging weakness, he said.

The notable exception was real estate and hiring services, reflecting the slowdown in house sales since the Reserve Bank introduced limits on low-equity mortgage lending last October.

The current account deficit was expected to narrow to 2.8% of GDP for the year to March from 3.4% in December and 4.1% in September.

By the March quarter of this year, export volumes had fully recovered from last year's drought and commodity export prices were at or near record highs, Mr Gordon said.

At the same time, the high New Zealand dollar depressed the prices of imported goods, keeping the dollar value of imports flat, even as volumes rose.

''Given the current account balance is reported on an annual basis . . . we expect the deficit to narrow further to 2.3% of GDP by the June quarter,'' he said.


At a glance

• Economic growth of 3.8% expected for March year
• Construction playing a major role
• Current account deficit to narrow
• Commodity prices at record levels


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