New Zealand growth expected higher in second-quarter, but slowdown to come

by NZ Adviser18 Sep 2015

New Zealand's economic growth is expected to have bounced back from a quarterly two-year low as the agriculture and mining sectors recovered in the second quarter, a Reuters poll found on Tuesday.

The median forecast in the poll saw growth of 0.5 percent in the three months to June 30, whenNew Zealand's second-quarter gross domestic product data is published Sept. 17.

"We definitely see recoil from things that were held down in Q1 (agriculture and mining), which on the face of it was very weak indeed at 0.2 percent," said Mark Smith, senior economist at ANZ.

"Those things are likely to reverse in Q2, which will provide some of the bounce-back."

Agriculture was expected to be stronger in the second quarter as it recovered from a drought, which weighed on agricultural activity earlier in the year. Mining was also seen higher as the Tui oil field returned to full production after a partial shutdown in Q1.

But growth was expected to slow in coming months as falling global dairy prices slashed farmer incomes and began to reverberate through the economy, while construction activity to rebuild earthquake-hit Christchurch plateaued.

Economists saw the annual rate of growth at 2.5 percent, a drop from the 3.5 percent seven-year high in December.

"We are expecting slow growth over two years, rather than a short, sharp shock," said Michael Gordon, senior economist at Westpac.

"The loss of dairy income is a process that takes some time to radiate out from dairy farmers to rural regions and eventually to the larger centres."

The Reserve Bank of New Zealand (RBNZ) last week downgraded its forecast for GDP to 2.1 percent in March 2016 from 3.2 percent in its previous monetary policy statement in June.

The RBNZ cut its benchmark interest rate by 25 basis points to 2.75 percent and said a further economic slowdown in China, New Zealand's biggest trading partner, could lead to more rate cuts if it weakened growth in the island nation.

Eight of the 13 analysts polled expected the RBNZ to cut rates by 25 basis points next month and most believed rates would stay on hold throughout 2016 at 2.5 percent. 

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