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Economy grows twice expected pace - kiwi hits 80 US cents

BUSINESSDESK: The New Zealand economy grew at its fastest quarterly pace in five years as good weather stoked milk production, and led to greater dairy manufacturing. 

The kiwi dollar surged to above 80 US cents after the figures were released.

Gross domestic product grew 1.1% to almost $35 billion in the three months ended March 31, the fastest quarterly pace since March 2007, according to Statistics New Zealand.

That is more than twice the 0.5% pace forecast in a Reuters survey of economists and almost three times the Reserve Bank's 0.4% projection.

The government statistics bureau revised the three previous quarters to 0.4% growth in each period, a cumulative increase of 0.4 percentage points.

"This quarter we saw growth spread across a number of industries, while in previous quarters the industry picture had been more mixed," national accounts manager Rachael Milicich said.

"Good growing conditions have been a major factor in the growth this quarter, and are reflected in both the milk production in in agriculture and in meat and dairy manufacturing."

The kiwi dollar climbed as high as 80.06 US cents from 79.55 cents immediately before the figures were released. The kiwi was recently at 79.96 cents.

Economists expected better milk production and greater livestock slaughter would underpin quarterly growth, even as their outlook for economic growth slowed on delays to the Canterbury rebuild.

Economic activity was up 2.4% in the March quarter compared to the same period a year earlier. The economy grew 1.7% in the year ended March 31, and was $202 billion in current prices, Statistics NZ said.

Agriculture, forestry and fishing rose 2.1% to $2.12 billion in the quarter due higher milk production as good.

Since the end of 2011, dairy prices have been falling on Fonterra Cooperative Group’s online trading platform, and the exporter recently trimmed its forecast payout to farmers as a resiliently high kiwi dollar drags down returns on foreign sales.

The manufacturing sector rose 1.8% to $4.72 billion as greater milk production stoked dairy manufacturing. Food, beverage and tobacco manufacturing climbed 3.2%.

There was a $416 million build-up in inventories due to greater manufacturing and a decrease in exports.

That comes after yesterday's balance of payments showed a wider deficit of $2.8 billion in the quarter on weaker dairy prices and a drop off in visitors after the Rugby World Cup.

Business investment rose 2.1% in the quarter, its biggest rise since December 2010, on more imports of plant and machinery and non-residential building work.

Construction activity shrank 0.1% to $1.47 billion as building work remains subdued ahead of the Canterbury reconstruction.

Information, media and telecommunications shrank 3% to $2.1 billion in the quarter, the biggest drag on the economy in the period.

Retail, trade and accommodation grew 4.5% to $9.59 billion in the quarter.

That came as household consumption remained muted, up 0.1% to $21.18 billion in the quarter.

Comments and questions
9

So why are interest rates still set at emergency low levels?
Something does not compute!

Well good one. Meat, wool, dairy,forestry, fishing, tourism. Such a small percentage of the population delivering the goods.
NZ owes so much to so few.

The interest rates are not "low". They are high, please compare our interest rates to those of our trading partners and people may get a clue to why the kiwi is high. One reason being that peeps in the likes of UK and Japan are getting more bang for their buck if their buck is a kiwi buck.
DOH Mr Bollard, like your predecessor you beat the 'ell out of your export sector with higher than global average interest rates. The very sector that is doing something to keep NZ's head above water. As poster #2 said, ".................

Because even though GDP increased - noone is spending any money. Not anymore than they need to anyway. Hence the low interest rates try and act like a stimulus. The increase in GDP was supply driven as opposed to demand driven I believe.

because the reserve bank does not have in its economic vocabulary the concept of pre-emptive action to moderate the consequences of inbedded inflationary forces. Rates, insurance, power, residential property prices in significant localities are all increasing well over cpi and yet they will point to a fall in the price of oil and commodity items or some such thing of which they have no control whatsoever over as the other side of the argument to explain away inaction. Price of an item 'milk solid' does not matter if you sell significantly more of the stuff with broadly the same input cost. Where is the media scutiny??? something does not add up!

Ah at least someone is on to it anonymous. The RBNZ is slave to the housing/mortgage lobby and looks right through all the home grown inflation that is growing like topsy all around us. My rates up 5%, my insurance up 50%, power up 6% etc etc etc .
But no we will just sit on our hands, wont we. Meanwhile savers (of whoms there are far more than mortgage holders, get right royally screwed by these financial repression tactics.

Although the situation now seems well, the most logical is not to move interest rates until the European crisis is resolved, because we know that this crisis could drag the entire continent, Chinese exports, the British economy, American (as we saw with the announcement of a possible QE3), and finally global economy...risks exist globally and is not so good to focus only on the local economy to change interest rates. Just my opinion.
I leave a link with an analysis of Woolworths Limited: http://oribe90.wordpress.com/2012/06/20/woolworths/

Although no 7 may well be correct about macro economic climate, if those matters do not materialise then inflation will already have a significant hold. That means very sharp rate rises which is no good for anyone planning investment or borrowing activities. Slow gradual increases or decreases make sense for continuity. If things get ugly, cut but how long does one allow oneself to be held captive by shadows

The public is doing a beautiful job of setting itself up for another shock, the same as it did when it was heavily fixed interest rates just before the crash - its just the opposite set but the same sense of collective logic

Not this year but sometime next year, that shock will hit and then watch cheap fixed rates disappear at about the same speed as the mortgagee sales of houses purchased at cheap floating rate levels

Shame, but that's the way the public collective mentality has always worked, and it ain't changing anytime soon.