New Zealand Economy Grows 0.8%, Fastest in Two Years

 
New Zealand’s economy grew at the fastest pace in two years in the fourth quarter as consumer spending, manufacturing and house construction increased.
Gross domestic product rose 0.8 percent from the previous three months, Statistics New Zealand said in Wellington today. Growth matched the median estimate in a Bloomberg News survey of 13 economists and followed a revised 0.3 percent gain in the third quarter.
Growth may accelerate this year as Prime Minister John Key plans to cut personal and company tax rates in the May 20 budget, boosting household incomes and investment. Reserve Bank Governor Alan Bollard said on March 11 he expects to raise the benchmark interest rate from a record-low 2.5 percent around the middle of the year as the economy recovers.
“It suggests the economy is recovering and warrants removal of monetary policy accommodation,” said Paul Brennan, a senior economist at Citigroup Inc. in Sydney. The central bank will “still be comfortable in raising rates from the middle of the year.”
New Zealand’s dollar bought 70.21 U.S. cents at 11.25 a.m. in Wellington from 70.20 cents before the report was released.
Nine of 14 economists surveyed by Bloomberg expect an interest-rate increase in June. Two predict an April move and three forecast a change in the third quarter.
Annual Growth
The economy grew 0.4 percent in the fourth quarter from a year earlier, also matching economists’ expectations. It was the first annual growth since the second quarter of 2008.
Bollard said this month the economy is recovering from a recession that ended in the second quarter of last year, buoyed by rising consumer confidence and spending. Confidence surged to a three-year high in January, according to an index compiled by Roy Morgan Research and ANZ National Bank Ltd.
Buoying activity, Key’s government plans to lower tax rates and boost spending on roads, schools and a high-speed Internet network to improve skills and exports. Key said in February he will also raise the rate of sales tax to curb consumption.
“The budget in May will set out the next steps to lift economic growth by tilting the playing field toward productive investment, exports and new jobs,” Finance Minister Bill English said today in an e-mailed statement. ‘
Still, growth may be subdued when compared with previous recoveries, Bollard said on March 11. New Zealand has fallen behind other Asia-Pacific countries in rebounding from the global recession as it relies less on exports to China, the world’s fastest-growing major economy.
Household Spending
The central bank expected the economy to expand 0.6 percent in the fourth quarter. It forecasts quarterly growth will average 1 percent this year as a global recovery buoys exports and businesses hire more workers in response to rising demand.
Household spending, which makes up 60 percent of the economy, rose 0.9 percent. Sales of used cars, home appliances and other so-called durable goods gained 1.4 percent. Purchases of food and non-durable items also increased. Spending on services fell, led by health and life insurance.
Briscoe Group Ltd., which owns sporting goods and home-ware stores, increased sales by 14 percent in the three months ended Jan. 31 from a year earlier, it said last month. The Auckland- based retailer lowered prices to encourage customers to increase spending.
Manufacturing rose 4.5 percent, the first increase in eight quarters, led by output from food, metal and chemical processing. Inventories increased for the first time in a year as manufacturers rebuilt stocks, anticipating increased demand, the agency said.
Investment in residential building jumped 4.8 percent. Total construction fell after declines in work on commercial offices and government buildings.
Milk Production
Output from primary industries fell in the quarter, led by mining. Farm output increased 1.1 percent.
Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said yesterday milk production increased 1 percent in the six months ended Jan. 31.
Business investment fell 2.5 percent, today’s report showed. Investment on exploration and software dropped 26 percent. Commercial construction also declined, while companies spent more on plant, machinery and transport equipment.
Exports of goods and services fell 0.9 percent led by a decline in dairy products, logs and reduced spending by tourists. Imports rose 6 percent, buoyed by machinery and transport equipment purchases, and spending by citizens traveling overseas.
Net exports subtracted from growth. Excluding exports and imports, gross national expenditure surged 3 percent in the quarter, the agency said.
The GDP deflator, a measure of prices, rose 1.6 percent in the year ended Dec. 31.
 

Bloomberg