New Zealand's economy grew 1% for the quarter to December slightly higher than economists' and Reserve Bank expectations, raising the likelihood that Reserve Bank interest rates may stay at present levels for some time.
The Gross Domestic Product for the year to December was boosted to 3.1% with the 1% rise in the quarter to December, largely on the back of the dairy sector, Tui oilfield exports, dairy transportation and a strong showing in the commercial building sector.
ASB chief economist Nick Tuffley said the 3.1% annual growth rate was not likely to prompt the Reserve Bank to continue to highlight its inflation concerns because of the increasing economic pressure on household budgets and "still murky global economy''.
"The driver of growth in the quarter [to December] will not be sustained in 2008, particularly the first half,'' he said.
He predicted the quarterly growth during 2008 was likely to average 0.2%, compared to the 0.9% pace in 2007, because of the effects of drought and emerging constraints on household budgets which includes New Zealand having the highest official cash rate of all developed countries.
"The unpredictable wild card remains the global credit markets which, if they deteriorate, could prompt the Reserve Bank to offset any impact on local credit conditions,'' he said.
ANZ chief economist Cameron Bagrie said the strength of the 3.1% growth lay in primary production, manufacturing, fiance and business services each making strong contributions.
However, the strong position meant the hurdle to lower interest rates from the Reserve Bank "will remain high'', he said in a statement yesterday.
He highlighted that the 1% quarterly growth bore an "eerie resemblance to late 1996'', which was just prior to a recession.
"Given the stronger starting position for the economy, the Reserve Bank will require a more substantial slow down to be convinced that inflation pressures will indeed subside,'' he said.
He reiterated ANZ predictions that growth would slow more sharply than the Reserve Bank's expectations during 2008.
Despite the strength of the latest figures, most analysts expect growth to slow rapidly in 2008 as the housing market continues to cool, with some predictions the economy is heading for recession, NZPA reported.
Statistics New Zealand said a 3.9% rise in gross fixed capital formation in the December quarter reflected strong business investment.
That investment was driven by increased investment in non-residential buildings; plant, machinery and equipment; and intangibles.
The latter category covers non-physical assets such as software and mining rights, and SNZ said the increase in intangibles for the December quarter was a result of increased exploration activity.
Exports of goods rose 8.1% in the December quarter, with dairy products and petroleum the main contributors.
The dairy exports in the three months reflected both an increase in production and a rundown in inventories. Imports of goods were up 4.3%, with consumption, intermediate and capital goods imports all up in the quarter.
Household final consumption spending grew 0.5% in the December quarter, from 0.4% the quarter before, with higher spending on durables and services again the main drivers of the latest quarter's growth.
Activity in primary industries rose 4.8% in the December quarter, mainly due to dairy production and mining activity. Agriculture was up 3.5% in the quarter while mining and quarrying was up 16.5%, with the Tui oilfield having reached full production in December.
Partly offsetting those increases was an 18.2% decrease in the fishing industry, with nearly all fish types measured recording lower catches.
Goods producing industries were up 1.9% due to increased manufacturing and construction, while service industries rose 1% in the quarter with property and business services the main contributor.
