Higher interest rates look likely next month, as New
Zealand's economic growth soared in the three months to March.
Until recently, it was thought the Reserve Bank would leave
the official cash rate at 3.25% until December but Statistics
New Zealand's figures, released yesterday, showed economic
growth of 3.8% for the year ended March.
Average annual growth was 3.3% and was expected to peak this
year at 3.7%.
Gross domestic product (GDP) growth is expected to now top 4%
in the year ended June, putting it among the top growth rates
in the OECD.
''We expect the Reserve Bank will lift the OCR in July,
barring events showing the economic outlook taking a sudden
turn for the worst,'' ASB chief economist Nick Tuffley said.
The main event now before the July 24 OCR announcement was
the second-quarter inflation figures due out on July 16.
The ASB expected a July OCR rise to be followed up in
December and official interest rates to hit 4.5% in the
second half of next year, he said.
The official figures showed construction provided a major
contribution to economic growth in the quarter. As the
earlier release of building work put in place data indicated,
growth in both residential and non-residential construction
was strong over the quarter.
This was partly offset by a fall in other construction
activity, a component which tended to be volatile, given the
lumpy nature of many infrastructure projects.
Total manufacturing activity was slightly softer than
expected with the flat outcome reflecting a surprise fall in
primary manufacturing over the quarter.
Mr Tuffley said strong growth in construction was providing
not just a direct boost to the building sector but also other
areas such as non-metallic mineral manufacturing which
produced ready-mix concrete and plasterboard.
Reserve Bank research found construction was a key influence
on domestic core manufacturing demand.
''We expect construction growth will underpin further growth
in ex-primary manufacturing production over the next couple
of years, although recent manufacturing sector surveys point
to a more modest pace of expansion,'' he said.
Finance Minister Bill English said the GDP result was the
latest in a run of encouraging economic indicators.
''Our challenge is to ensure this growth continues over the
long-term because that's the best way to deliver more jobs
and higher incomes for New Zealanders.''
Business and consumer confidence remained high, manufacturing
activity had been expanding for almost a year and a-half and
the current account deficit was less than half of what it was
five or six years ago, he said.
There was still plenty of work ahead to ensure the positive
indicators continued to translate into real opportunities and
progress for New Zealanders and their families, Mr English
Council of Trade Unions economist Bill Rosenberg questioned
whether most people would see money in their pockets as a
result of the current high economic growth rates.
Economic growth was forecast to peak this year, yet wage
growth had been slow.
''There is a real question whether the current growth will
come and go with few people seeing the benefit of it in their
own standing of living.''
There was an increasingly urgent need for policies to bring
down the exchange rate, help industries create good,
well-paying jobs, and ensure the income generated by the
economy had benefits for wage and salary earners through
rising wages, he said.