Economy expands 0.5% in March quarter

Bad weather affected forestry activity in the three months ended March. Inset: Jarrod KerrPHOTO:...
Bad weather affected forestry activity in the three months ended March. Inset: Jarrod KerrPHOTO: GETTY IMAGES
New Zealand's economic growth figures continued to hover around their average in the three months to March.

The economy expanded 0.5% in the March quarter, weaker than the Reserve Bank had expected.

Statistics New Zealand figures show annual gross domestic product (GDP) growth of 2.7%.

Kiwibank chief economist Jarrod Kerr said it was important to put the figures in context.

"They're old. We're already finishing up the second quarter and talking about the first quarter. But the numbers give us a base to work off."

The size of the economy was in line with economists' expectations for the quarter and much larger than economists' expectations six months ago, he said.

The Government's Budget emphasised the importance of the large economy as it showed an extra $3.4billion in projected revenue growth thanks to the larger base, or starting point.

Kiwibank's forecasts were starting to show a "meaningful uplift" in nominal growth in years to come. Along with a shift upwards in real growth, a rise in wage inflation was expected, Mr Kerr said.

The Reserve Bank was unlikely to be concerned about yesterday's figures, although there was some disruption to growth.

A drop in spending on new and used vehicles had a material impact on both retail trade and household consumption.

The disruption was caused by the halt of car shipments following the discovery of stink bugs, he said.

"The Reserve Bank will likely view March quarter GDP as being broadly in line with its view. The economy is growing around trend but is expected to perk up and eventually require the official cash rate to be lifted."

New Zealand was at least a year away from an OCR rate rise, Mr Kerr said.

BNZ head of research Stephen Toplis said other one-offs the economy faced in the March quarter included adverse weather conditions reducing the forestry harvest, construction activity and, possibly, retail spending.

The end of significant post-Kaikoura earthquake construction projects and gas supply constraints due to maintenance and repair work also affected the economy.

A drop in meat processing came from an earlier kill because of dry weather concerns and there appeared to be a negative impact on activity from an early Easter.

As much of those elements would resolve themselves in the second quarter, the BNZ was picking a June quarter GDP rise of 0.8%, he said.

By September, the quarterly growth rate was expected to be 1%.

"Some commentators were quick to suggest weakening business and consumer confidence were responsible for the quarter's softening. We don't believe this.

"We are strongly of the view investment activity is starting to be adversely affected by a combination of increasing input costs and political uncertainty."

Importantly, although some people questioned the reliability of business surveys in picking future growth, the BNZ was cognisant of feedback from its own customer base, Mr Toplis said.

Decisions were being put on hold while businesses came to grips with the new operating environment.

Any reduction in uncertainty could only help support future activity, while any increase in concerns would impact future growth.

Yesterday's release was in line with market projections and those of the BNZ, he said.

However, it was below the quarterly estimates of both Treasury and the central bank.

"We had warned post-Budget Government revenue expectations might be a bit optimistic, given our expectations for the evolution of the real economy.

"This data did nothing to dispel that view."


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