New Zealand Economic Growth Slows Less Than Expected

Sep 28, 2007 - New Zealand's economic growth slowed less than expected in the second quarter, signaling the central bank is unlikely to cut interest rates from a record.

Gross domestic product increased 0.7 percent in the three months ended June 30 from the first quarter when the economy expanded a revised 1.2 percent, Statistics New Zealand said in Wellington today. The median estimate of 11 economists surveyed by Bloomberg News was for 0.5 percent growth.

Reserve Bank of New Zealand Governor Alan Bollard raised the benchmark interest rate four times between March and July to a record 8.25 percent to slow domestic demand and inflation. Stronger-than-expected growth in the first half of the year suggests he has little scope to cut borrowing costs, buoying the New Zealand dollar.

"The strain on resources will bring no comfort to the Reserve Bank," Doug Steel, an economist at Westpac Banking Corp. in Wellington, said before the report was released. Rising growth 'ould certainly add to inflation worries and see a reduction in the probability of interest-rate cuts.'

New Zealand's dollar rose to 75.38 at 10:50 a.m. in Wellington from 75.09 cents immediately before the report.

Bollard will keep the official cash rate unchanged for the remainder of this year, according to all 13 economists in a second Bloomberg survey. Just four predict a cut before June 30.

Annual Growth

Steel says Bollard won't cut the rate cut until 2009, noting the Reserve Bank expects inflation will accelerate to 3 percent this year. Bollard is required to keep inflation between 1 percent and 3 percent. Consumer prices rose 2 percent in the year ended June 30.

From a year earlier, the economy expanded 3.2 percent. Annual- average growth was 2.2 percent from 1.7 percent in March. Economists forecast 2.1 percent.

Economic expansion will probably accelerate this year. Bollard expects 2.9 percent annual average growth in the year ending March 31, according to his latest forecasts. He predicted 0.5 percent in the second quarter.

Economists aren't as optimistic. Growth will probably be 2.4 percent in the year ending March 31, 2008, before slowing to 2 percent a year later, according to the average estimate of 10 economists surveyed by the New Zealand Institute of Economic Research Inc.

Growth could be as little as 2 percent over the next year, ANZ National Bank Ltd. said yesterday, basing its forecast on its monthly measure of business confidence. More companies expect profits will fall and fewer plan to hire workers, according to the survey of 423 firms.

Consumer Spending

The expenditure-based measure of GDP rose 0.8 percent as a 1.5 percent increase in domestic demand was offset by net exports, which subtracted from growth, the statistics agency said today.

Buoying growth, investment in new housing surged 3.8 percent. Government spending also increased. Inventories rose, adding to growth.

Household spending, which makes up 60 percent of the economy, gained 0.6 percent from the first quarter when it rose 2.1 percent.

Hallenstein Glasson Ltd., the third-biggest publicly traded retailer, said on Sept. 14 that full-year profit fell. The performance in New Zealand ``was challenging, with rising interest costs finally beginning to dampen consumer spending,'' Chairman Warren Bell said in a statement.

Skills Shortage

Spending on alcohol, food and other so-called non-durable goods rose 1.4 percent in the quarter. Purchases of cars, appliances and durable items gained 0.4 percent.

On Sept. 13, Bollard said there were signs that higher borrowing costs are damping domestic spending. Still, rising wages, government spending and record payouts to dairy farmers will prevent spending stalling, analysts said.

New Zealand's jobless rate fell to a record 3.6 percent in the second quarter as companies added more than twice the number of workers forecast by economists.

A skills shortage sparked a record 3.2 percent wage increase for non government workers in the second quarter from a year earlier.

Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, has raised its milk payment to 10,900 farmers by 43 percent, citing record prices. That will add NZ$2.6 billion ($1.9 billion) to farm incomes this year.

Crimping growth, imports rose and business investment fell 2.9 percent from the first quarter, the agency said. Purchases of plant and machinery declined. The purchase of a navy ship buoyed investment in transport equipment.

Service Industries

Imports rose 2.5 percent, buoyed by the navy ship and spending also increased on overseas travel, which is treated as an import of services. Consumption goods imports fell 3.4 percent.

Exports of goods and services increased 0.5 percent in the quarter, with meat and dairy volumes declining. Tourist spending helped exports of services increase.

Service industries including finance and business services, transport and communications contributed most of the growth in the quarter, the agency said. Production from those industries increased 0.9 percent. The output from farmers and other primary industries rose 0.2 percent, while production from manufacturers and other goods producers dropped 0.1 percent.

Real estate sales and lending by financial institutions contributed most to output from the services industries.

Production from primary industries rose, buoyed by output from the nation's oil and gas fields. Farm production fell. Among goods- producing industries, manufacturing increased while construction declined.

The implicit price deflator gained 3.1 percent for the year ended June 30, the agency said.

New Zealand Trade Deficit Tops Expectations

Sep 26, 2007 - New Zealand's trade balance was a deficit of NZ$945 million in August, marking the highest level since it touched NZ$825 million in January this year. In July, trade deficit widened to NZ$791 million.

In August, the trade balance topped expectations of analysts. They were expecting a deficit of NZ$990.0 million.

Merchandise exports slid 2.7% year-over-year to NZ$ 2.7 billion in August, while imports dropped 2.2% to NZ$3.6 billion.

During the three months ended August, exports of merchandise goods fell 7.9% or NZ$687 million to NZ$8.0 billion, compared to the same period of the previous year. In 2005, exports grew 18.9% in the same period.

In the same period, imports of merchandise goods totaled at $10.3 billion, which is down NZ$247 million or 2.3% year-over-year.

New Zealand's Current Account Deficit Narrows As Imports Fall In Second Quarter

Sep 20, 2007 - New Zealand's second quarter current account deficit stood at NZ$3.415 billion, down NZ$162 million from the previous quarter, the Statistics New Zealand said Thursday. The fall in current account deficit was attributed to smaller trade deficit and higher net inflows of current transfers. Meanwhile, investment income showed larger outflow during the June quarter.

The seasonally adjusted trade deficit in goods fell NZ$45 million to NZ$767 million, while services surplus rose NZ$43 million to NZ$177 million in the second quarter.

This value of exports and imports of goods fell due to the appreciating New Zealand dollar in the second quarter, the report said. Imports fell more than exports, reflecting lower consumption of foreign goods.

The value of imports was NZ$9.473 billion in the June quarter, a decrease of NZ$349 million in the prior quarter. The value of goods exports fell NZ$305 million to NZ$8.706 billion over the same period.

Investment income earned by foreigners increased due to higher dividend payout amounting to NZ$1.483 billion.

New Zealand's current account deficit was funded by a financial net inflow of NZ$2.7 billion in the June quarter. This combined with NZ$2.9 billion of net changes in the valuation of international assets and liabilities, pushed New Zealand's net international debtor position by 3.9% to NZ$148.6 billion from the previous year.

The rise in net international position was contributed mainly by the banking sector. The net international debt position of the corporate sector also rose in recent quarters due to merger and acquisition activity.

For the year ended March 2007, the current account deficit was revised down to NZ$13.5 billion from the initial deficit of NZ$13.9 billion. The deficit was equivalent of 8.5% of GDP in the first quarter. The GDP ratios for the latest data will be released on September 27, the report said.

New Zealand Leaves Key Rate Unchanged at Record High

Sep 13, 2007 - New Zealand's central bank left the benchmark interest rate at a record-high 8.25 percent, saying a declining currency and higher prices for commodity exports will stoke the economy and fan inflation.

"We continue to expect a significant boost to the economy over the next two years from the sharp rise in world prices for dairy products and some other commodities," Reserve Bank Governor Alan Bollard said in a statement released in Wellington today. Still, global financial market volatility increases the likelihood of a weaker economic outlook for the nation's trading partners such as the U.S., he said.

Bollard has little scope to cut borrowing costs because wages are rising and a 3.5 percent decline in the New Zealand dollar the past month has swelled earnings for exporters. The central bank will wait to see if consumer spending and housing demand slow before contemplating a rate cut, said economist Stephen Toplis.

"If you take the central bank at face value, they're not talking about a cut in rates until the second half of 2009," said Toplis, head of research at Bank of new Zealand Ltd. in Wellington. The currency rose to 71.24 U.S. cents at 10 a.m. in Wellington from 71.18 cents immediately before the statement. It has fallen from a 22-year high of 81.10 cents on July 24.

All 14 economists surveyed by Bloomberg News predicted today's decision. Just four expect a rate cut before June 30 next year.

Inflation Forecast

"Inflation is likely to rise due to the effects of a low exchange rate and higher food prices," Bollard said. "It is important that this temporary increase doesn't affect prices or wage-setting behavior."

Bollard is required by the government to keep inflation between 1 percent and 3 percent. Annual inflation will accelerate to 2.9 percent by March next year and 3 percent by March 2009, the central bank said today. Consumer prices rose 2 percent in the year ended June 30.

"The current level of the official cash rate is consistent with the future inflation outcomes of 1 percent to 3 percent," Bollard said.

The New Zealand dollar's decline against the U.S. currency has increased earnings from the nation's biggest exports, such as milk powder, cheese and yoghurt. Auckland-based Fonterra Cooperative Group Ltd. is the world's biggest exporter of dairy products.

"A sharp decline in the New Zealand dollar since July, if sustained, will act to reinforce the effects of higher world prices" for the nation's commodities, Bollard said.

Jobless Rate

New Zealand's jobless rate fell to a record 3.6 percent in the second quarter as companies added more than twice the number of workers forecast by economists. A skills shortage sparked a record 3.2 percent wage increase for non government workers in the second quarter from a year earlier.

Central banks around the world have kept borrowing costs unchanged as they assess whether the U.S. subprime mortgage rout will derail global economic growth.

The Reserve Bank of Australia last week kept its benchmark rate at 6.5 percent. The European Central Bank left its rate at 4 percent and lowered its forecast for growth in Europe. The U.S. Federal Reserve will probably cut its main rate next week, according to a majority of 117 economists surveyed by Bloomberg News.

"Credit concerns and heightened risk aversion have led to significant turbulence in global financial markets," Bollard said. "The consequences of this turmoil for New Zealand remain unclear at this stage."

Domestic Spending

Bollard raised rates four times between March and July to curb domestic demand and inflation. Recent indicators "suggest that previous rate increases are starting to dampen domestic spending," he said.

House sales fell to an 18-month low in July, according to a Real Estate Institute report released on Aug. 9. Home-building approvals fell to a three-month low in July, the government said last week.

Retail sales unexpectedly declined in June. Sales excluding inflation, a measure of volumes, also fell in the three months ended June 30, the first drop in six quarters.

Consumer confidence slipped to a 15-month low last week, according to a poll of 1,000 voters conducted for TV3 Network Ltd.

"The trading environment was much tighter than for the first half of last year," Rod Duke, chief executive officer of retailer Briscoe Group Ltd., said on Sept. 7. "Low levels of consumer confidence in the economic outlook contributed to tightening trading conditions."

The Auckland-based home ware and sporting goods retailer said first-half profit fell 12 percent.

Economic Growth

Economic growth will accelerate to 2.9 percent in the year ending March 31, 2008, from 1.7 percent a year earlier, the central bank said today. In June, the bank forecast 3.1 percent growth this year.

The central bank expects housing investment will contract in the year to March 2009. Consumer spending and demand for imports will remain strong and growth will be buoyed by rising exports.

Higher global prices for its dairy products prompted Fonterra to raise its 2008 milk payment forecast to a record. That will add NZ$2.6 billion ($1.8 billion) to New Zealand farmers' incomes.

New Zealand's official cash rate, introduced in March 1999, is 7.75 percentage points more than Japan's benchmark.

The currency has gained 10 percent the past year as traders borrow at cheaper rates in Japan and invest in New Zealand's higher yields, in what is known as the carry trade.

Still, the currency dropped the past month as growing concern that defaults on U.S. home loans to people with poor credit histories prompted fund managers to avoid risky investments such as the carry trade.

New Zealand 2008 Economic Growth Forecast Rev. Down To 1.3%, Sees Higher Inflation

Sep 4, 2007 - The New Zealand economic growth forecast was revised down to 1.3% in the year to March 2008, the latest report from the New Zealand Institute of Economic Research - NZIER indicated Tuesday. Annual average growth rate was initially estimated at 2.1% in the year to March 2008. The institute predicts 1.5% growth in the year to March 2009. The lower growth expectation was largely due to slowdown in private consumption growth.

The annual growth rate over the first five years ended March 2007 was 3.4%. The institute sees the second half of 2007 and the first half of 2008 to be the period of slowest growth since 2000-01. The growth would rise gradually to 3.6% by the March 2011.

The report added that on per head of population basis, growth would be below 1% in the next two years and 0.4% in the March 2008. Further, the growth would be 0.7% in the March 2009 year.

NZIER forecasts that consumer price inflation would rise sharply later this year from its current rate of 2.0%. Inflation would breach the central banks' medium term target range of 1%-3% in the December quarter and peak at 3.5% in March 2008. The inflation would not return to be within the band until the end of the 2008 calendar year.

The report added that the Reserve Bank raised the Official Cash Rate by 1.0% to 8.25%. The institute said, “The Reserve Bank is in a very difficult position with the inflation outlook not good, the economy already growing slowly and its main policy instrument, interest rates, already at a level that should be significantly contractionary.”