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GDP Preview: Lacklustre manufacturing weighed on fourth-quarter

BUSINESS DESK: The New Zealand economy probably slowed in the final three months of 2011 as a drop in manufacturing offset strong farming outputs and improving retail trade and construction sectors.

A Reuters survey of 11 economists predicts gross domestic product figure due next Thursday will show a 0.6 percent rise in the fourth quarter, slowing from an 0.8 percent pace three months earlier. That’s at about the trend rate for growth, according to Westpac.

New Zealand’s gentle economic revival went into stasis through much of 2011 as rebuilding in Christchurch was delayed by further earthquakes, and households remained focused on reducing debt. The fourth-quarter forecast is shared by the Reserve Bank of New Zealand, which sees growth continuing at the same 0.6 percent rate in the first quarter of 2012 before accelerating.

“Recent data have suggested the New Zealand recovery is gaining a firmer footing, with improvement in activity seen in many sectors of the economy,” said ASB chief economist Nick Tuffley, in a note today, although the pace of underlying growth “remains gradual.”

Traders are betting RBNZ Governor Alan Bollard will lift the official cash rate by 30 basis points in the next 12 months, based on the overnight index swap curve, and economists don’t expect him to move until December or into 2013. By then, the ‘growth dividend’ from activity in Christchurch will be clearer, as well its inflationary effects.

Manufacturing is expected to have taken the most off GDP in the fourth quarter. Westpac sees the sector slicing about 0.25 point of GDP. In the final three months of 2011, famers held back livestock from slaughter because of favourable pasture conditions.

The construction industry is already showing signs of better times to come. Home-building consents rose 8.3 percent in January. In the city of Christchurch, there were 209 consents issued, up from 61 in the previous month.

The GDP data also captures non-consented work such as repairs and demolitions, which “have made up a large part of the recovery activity to date and probably accelerated in the December quarter,” said Michael Gordon, senior economist at Westpac, in a note.

New Zealand’s pace of growth, while moderate is still “the envy of many developed countries at the moment,” Gordon said.

The US Federal Reserve this week affirmed its view that it would keep interest rates near zero until 2014, while pointing to an improving outlook for the world’s biggest economy.

The local GDP data is released at 10:45am on Thursday, March 22. A day earlier, balance of payments figures are released for the fourth quarter.

That’s expected to show the current account deficit narrowed to $2.75 billion in the quarter for an annual gap of $8.16 billion, around 4 percent of GDP, a Reuters survey shows.

A weaker New Zealand dollar and strong export volume growth during the quarter “should more than offset softer global commodity prices, leading to a notable improvement in the goods balance,” said Anne Boniface, senior economist at Westpac.