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NZ economy expands at fastest pace in two years as manufacturing revives

Thursday 25th March 2010

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New Zealand’s economy accelerated in the fourth quarter, growing at the fastest clip in two years as manufacturing revived and companies built up inventories that had run down through the recession.

Gross domestic product expanded 0.8% in the final three months of 2009, according to Statistics New Zealand, matching the median in a Reuters survey. Growth in the third quarter was revised up to 0.3% from 0.2%.

The data confirms the New Zealand economy’s recovery is picking up pace after emerging from recession in the second quarter last year. While the pace of growth in the fourth quarter was faster than the central bank’s 0.6% estimate this month, economists say it keeps Governor Alan Bollard on track to start raising interest rates mid-year.

“The economy is beginning to show genuine signs of life,” said Stephen Toplis, head of research at Bank of New Zealand. “It’s further confirmation that we’re clawing our way out of the mire, and can expect the next quarter to be about the same, or a little bit less.”

Manufacturing activity expanded 4.5%, snapping seven quarters of decline, led by food and beverages. Wholesale trade climbed 2.7%, also after falling for seven straight quarters. Retail, accommodation and restaurants gained 1.7%

“Manufacturing is benefitting from the strength of the Australian economy and the Aussie-Kiwi cross rate at the moment, and New Zealand demand is starting to pick up, although it’s coming off an awfully low base,” Toplis said.

Australia’s economy, the biggest market for New Zealand exports, skirted recession last year, helped by demand for raw materials from China. At the same time, the kiwi dollar has sunk to a 10-year low against its counterpart across the Tasman, making the nation’s products relatively more competitive.

The kiwi recently traded at 77.18 Australian cents, from 77.31 cents before the GDP data. The New Zealand dollar was at 70.18 US cents, from 70.20 cents.

The economy expanded 0.4% in the fourth quarter from a year earlier, compared to a 0.3% pace in the Reuters survey.

Inventories grew by $172 million in the latest quarter, after running down over the previous nine months, reflecting restocking in anticipation of increased demand.

Household consumption spending grew 0.9%.

Bollard this month predicted the recovery will be “subdued relative to previous recoveries” with households still cautious and business spending weak “despite much improved confidence.”

The economy still faces headwinds. Unemployment is sitting at a decade-high 7.3%, workers are feeling less confident about their current circumstances and property investors are looking ahead to the Budget with fear about the extent to which their tax breaks will be eliminated.

Among indicators of consumer activity, figures this month showed spending debit and credit cards fell 0.4% in February, while January core retail sales were weaker than expected. The GDP deflator rose 1.6% in 2009, the government statistician said.


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