Slow economy makes rate hikes unlikely - Key

Prime Minister John Key doesn't expect the Reserve Bank will be in a hurry to raise interest rates now that the latest economic statistics have shown a lower than expected increase in gross domestic product (GDP).

Statistics New Zealand reported today economic activity edged up in the June quarter, with GDP rising 0.2 percent following a 0.5 percent rise in the March quarter.

"It's lower than we would have hoped and there's a lot of work to be done," Mr Key told reporters.

"But I suspect what that means is what we heard from the Reserve Bank governor (Alan Bollard) last week... I can't really see him raising rates in a hurry."

Mr Key said the figures showed export growth was very strong, and that was part of the rebalancing that was going on in the economy.

"The October tax cuts can't come quick enough because they'll add stimulus to the economy," he said.

Finance Minister Bill English said a fifth successive quarter of economic growth is another sign the recovery was continuing although the figures showed it was patchy.

"Looking ahead, I expect some volatility in the next few quarters of GDP data," Mr English said.

"The Canterbury earthquake and uncertainties about the global outlook will no doubt impact on New Zealand's immediate economic performance."

Mr English said the latest quarterly growth was below expectation and reflected the patchy nature of New Zealand's recovery from the international recession.

"Total domestic spending fell slightly. By contrast, export volumes have increased 7 percent from their lows of 2008 and they had their second strongest quarter on record," he said.

"The Government's tax package next week will further help the economy in the long term."

The Council of Trade Unions (CTU) said the GDP figures underlined concerns that the recovery was stalling.

"It is not good news for employment growth and for reducing the high level of unemployment," said CTU economist Bill Rosenberg.

"The Government should be looking at further measures to boost activity in the economy and support for people who have lost their jobs."

He said the Reserve Bank should continue to resist rises in interest rates.

The Manufacturers and Exporters Association (NZMEA) said the figures showed economic imbalances remained.

"At 0.7 percent growth over the past year is still very weak and the return to an increasing balance of payments deficit shows that economic rebalancing is simply not happening,'' said NZMEA chief executive John Walley.

"A high and volatile exchange rate still discourages growth in exports and the lack of tax on assets still encourages investment in property rather than business in the traded economy.''

Mr Walley said there was no reason for the Reserve Bank to lift interest rates "and every reason why it should have been cut this month''.

The kiwi dollar sank 0.7 percent to US73.08c after the release.

"The economy has effectively stalled and lost momentum in the second quarter," said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

"The Reserve Bank is well and truly out of play for the rest of the year."

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2 Comments & Questions

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Just watch the ole economy stall once the GST rise combines with the CPI rise, due to ETS = equivalent rate of 19.94% (GST).

Game over NZ

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Mr Bollard and his team are to take note and get serious?

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