17 Sep 2015

Economy rebounds in June quarter

3:17 pm on 17 September 2015

The economy has rebounded, but by less than analysts had expected.

A bundle of New Zealand money.

Photo: RNZ / Alexander Robertson

Official figures show gross domestic product (GDP), which is a broad measure of the health of the economy, expanded 0.4 percent in the three months to June.

That compares with growth of 0.2 percent in the previous quarter.

A Reuters poll before today's release had analysts picking growth of about 0.5 percent.

Statistics New Zealand said growth had been boosted by a rebound in dairy production, which had increased 3 percent due to increased meat and dairy farming following drought earlier in the year.

Food processing also rose due to strong dairy product manufacturing.

Services industries rose 0.5 percent, led by business services and real estate services.

Domestic demand rose strongly by 1.3 percent, led by robust household spending on big ticket items like cars and furniture.

Business investment also snapped two quarters of declines, due to an increase in plant and machinery and roading.

Net exports declined, as exports fell 1.1 percent, offsetting a 2.3 percent rise in imports.

On an annual basis, the pace of economic activity slowed to 3 percent compared with 3.2 percent in the March year.

When comparing activity in the June quarter with the same period a year ago, the pace of growth eased to 2.4 percent.

The size of the economy stood at $241 million.

Further slowdown expected

Westpac Bank chief economist Dominick Stephens said the numbers pointed to an economy that was slowing further.

"By the turn of the year, I think we're looking at 0.3 percent per quarter. So, in annual terms that's going to mean economic growth is going to slow from 3.3 percent in 2014, down to perhaps below 2 percent by 2016."

While the market was picking growth of 0.5 percent, the Reserve Bank was picking 0.6 percent.

The central bank is still forecasting one more rate cut, which would take the official cash rate back to its record low of 2.5 percent.

But economists are divided as to when that will happen, if at all.

Mr Stephens said it was touch and go as to whether the Reserve Bank would reduce the cost of borrowing in October, or wait.

He said the data had been mixed.

"This week we've had very, very strong dairy prices, which lends in favour of holding off. We've got weak GDP data which lends in favour of cutting the OCR straight away. So, it's still clear as mud."

Mr Stephens said tomorrow's US Federal Reserve decision on interest rates and next month's local inflation figures may help clarify the picture.

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