22 Mar 2010

Forecasts expected to show slowly improving economy

7:16 am on 22 March 2010

Figures of economic health being released this week are expected to paint a picture of a slowly but steadily improving economy in New Zealand.

The forecast is for Gross Domestic Product (GDP) - a broad measure of the health of the economy - to have increased 0.8% in the final quarter of the 2009 financial year.

BNZ senior economist Craig Ebert says while the result is likely to be more positive than the 0.2% growth experienced in the third quarter, the improvement remains very patchy - with not all sectors faring equally.

He says manufacturing has bounced back reasonably, although it has been one of the hardest hit sectors over the last 12 to 18 months.

Mr Ebert says forestry has bounced back, primarily around logs and consumer spending has advanced some degrees.

Mr Ebert believes the report is likely to be not too bad, but it is only the start of what is needed.

He says GDP growth of 0.8% should not put too much pressure on the Reserve Bank to start lifting interest rates from record lows, but growth of over 1% might speed up rate increases.

Meanwhile, details of New Zealand's current account deficit for the December quarter are expected to paint a more positive picture.

Many economists are expecting the deficit to have shrunk dramatically - from 8.7% of GDP at the end of 2008, to about 1.9% at the end of last year.

And Goldman Sachs JB Were has pushed out the date it expects the Reserve Bank to start increasing interest rates - from June to sometime in the third quarter - due to higher bank funding costs persisting.

Balance of payments results are released on Wednesday, and GDP on Thursday.