Economy expands 0.2%, eking out weakest quarterly growth in two years; Kiwi falls

New Zealand's $239 billion economy grew at its weakest quarterly pace in two years, driven by a dairy-led contraction in agriculture and the impact on the mining sector of a drop in oil and gas activity. The New Zealand dollar fell.

Gross domestic product grew 0.2% in the first three months of the year, according to Statistics NZ. That was a third of the growth forecast by the Reserve Bank and bank economists. The economy grew at an annual 3.2%, just below expectations. The local currency fell as low as 69.09USc, from 69.56USc immediately before the 10:45am release. It was recently trading at 69.14USc.

Weak growth may stoke speculation the Reserve Bank will cut the official cash rate again in coming months after last week's quarter-point reduction to 3.25%. Reserve Bank governor Graeme Wheeler cited the slump in global dairy prices and the impact on the terms of trade in last week's monetary policy statement, estimating farmers' incomes in the 2014/15 season would be down about $7 billion.

Agricultural industries contracted 2.3% in the quarter, reflecting lower milk production driven by drought conditions in some regions and lower dairy prices. In this week's GlobalDairyTrade auction, dairy prices fell to their lowest levels in almost six years.

The mining sector shrank 7.8%, "due to decreased exploration activity, and oil and gas extraction," the government statistician said. "There was less extraction and exploration as international prices fell."

The combined 2.9% decline in primary industries more than offset gains in business services, up 2.1%, retail trade and accommodation, which rose 2.4% on the back of tourist spending and a 2.5% percent increase for transport, postal and warehousing, led by international air transport.

Retailing and accommodation recorded annual growth of 6.1%, the fastest in almost a decade, helped in the quarter by international events such as the Cricket World Cup and Chinese New Year. International tourist spending rose 2.3% in the latest quarter.

The expenditure measure of GDP grew just 0.1% in the first quarter, slowing from a revised 1.2% increase three months earlier. Household consumption rose 0.7%, led by spending on durable goods, and exports of goods and services gained 1.5%. Imports of goods and services rose 1%.

Inventories grew by $106 million, reflecting a build-up in agriculture and forestry. Investment in fixed assets fell 1.9%.

(BusinessDesk)