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At 0.3%, gross domestic product (GDP) rose less than the 0.5% expected by most analysts and the Reserve Bank, following a 1.5% rise in the previous quarter, gains from the Canterbury rebuild being offset by the effects of the drought, Statistics New Zealand (SNZ) said in releasing its data yesterday.
The drought's negative impacts on GDP, which measures national economic output, are forecast to continue throughout the year.
SNZ GDP project manager Jason Attewell said the drought's impact showed up as expected, with lower milk production and higher stock slaughter numbers.
''We expect the drought will impact on the economy for several quarters, as lower herd numbers and conception rates will affect future production,'' he said in a statement.
ASB economist Christina Leung said the weaker-than-expected 0.3% GDP rise suggested continued ''softness'' in business investment.
While companies were still cautious about investing in plant and machinery, the underlying growth appeared ''mildly encouraging'', momentum in construction gathering and household spending continuing to improve.
''We expect the drought will reduce production in the June quarter and mean another modest increase in GDP, given the declines in milk production and livestock slaughter in recent months,'' she said in a statement.
Westpac chief economist Dominick Stephens said the 0.3% GDP growth was a ''surprise'', given expectations, but the discrepancy was relatively small and did not alter his view of New Zealand's economy as ''being on a broadly accelerating trajectory''.
The 0.3% gain ''leant in the direction'' of later, or fewer, official cash rate hikes by the Reserve Bank and a lower New Zealand dollar, Mr Stephens said.
Ups and downs
Changes in GDP in March quarter.
Up: Business services up 3.9%, driven by architectural and engineering services in Canterbury and Auckland. Construction up 5.5%, because of construction activity in Canterbury.
Down: Agriculture down 4.7%, due to dry weather. Lower milk production; dairy stock dried off earlier. Information media and telecommunications down 3.1%; declines in call minutes.
Source: Statistics NZ