The New Zealand dollar could be in for a rocky ride this week with at least three economists forecasting the economy shrank in the June quarter.
According to a Reuters survey of 10 economists, predictions for the figures due on Thursday range from the economy having shrunk 0.2% to 0.6% in the three months.
Bank of New Zealand economist Doug Steel, who is among the most pessimistic, said if the economy does shrink, it was all down to the drought.
while the headlines may look bad, he said the forward indicators are suggesting the economy is now growing reasonably strongly.
He said second quarter figures will indicate that there was a drought which hit food processing hard so that part of the manufacturing sector suffered quite a big decline in the quarter.
Mr Steel said there was also a pause in construction activity which has now picked up again.
He said the indicators for the third quarter and the outlook are still strong and even if there is a negative number in the second quarter the underlying trends are still positive.
On Wednesday, figures on New Zealand's current account deficit, the measure of the extent to which the country has to draw on foreigners' savings to fund its economy, are expected to show it was steady at an annual level of 4.8% of the economy.
Westpac economist Michael Gordon said even that's on the high side by international standards, but it's unlikely to worry investors.
Bancorp Treasury Services senior client advisor Peter Cavanaugh agreed the market is unlikely to react to the current account deficit but says a negative growth figure could spark a sell-off in the New Zealand dollar.
Conversely, depending on the components, growth of 3% or more could push the currency higher, Mr Cavanaugh said.
