GDP expands less than expected in third quarter

By NZPA

Thursday 21st December 2006

The New Zealand economy expanded by a less than expected 0.3% in the September quarter.

The market was expecting around 0.6% growth in the quarter.
The quarterly figure compares with the Reserve Bank's forecast of 0.7%. It will take pressure off the central bank which is seen as poised to hike interest rates next year if data surprises on the upside.

Statistics New Zealand (SNZ) said the annual growth rate was 1.4% in the year ended September, down from 2.5% in the year ended September 2005. Earlier this month Reserve Bank governor Alan Bollard gave borrowers a backhanded Christmas present by leaving the Official Cash Rate on hold at 7.25% but leaving the door open for a hike next year.

Some economists had expected him to raise the rate, which has been unchanged all year, to try and squeeze New Zealand's 4% annual inflation rate lower.

SNZ said domestic spending decreased by 0.2% in the quarter. The decline was attributed to reduced investment in inventories and a reduction in non-residential building investment.

"Domestic spending has fallen in three of the last four quarters, resulting in annual growth (in domestic spending) reaching a five-year low of 0.4%," SNZ said.

SNZ said service industries continued to provide much of the impetus in the New Zealand economy, increasing 0.9% in the September quarter.

"The finance, insurance, and business services group, together with the transport and storage group, and communications industries, contributed strongly to this quarter's growth," SNZ said.

Offsetting this was a 1% fall in manufacturing activity in the quarter.

Robin Clements, senior economist at UBS, said the quarterly figure was at the bottom end of the range economists were expecting and less than half what the central bank was forecasting.

"It makes it difficult, I would think, for the Reserve Bank to hike. Not impossible -- it makes it difficult," Reuters reported him saying.

The New Zealand dollar fell to US69.35c by late morning from the US69.67c opening as the data implied interest rate hikes are less likely. The currency has been trading at 11-month highs and threatening the US70.00c level.

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