Economy grows faster-than-forecast 0.7% in first quarter; kiwi dollar jumps

New Zealand's economy grew at a faster pace than expected in the first quarter of 2016 as construction expanded at the quickest rate in two years. The kiwi dollar jumped after the data was released.

Gross domestic product expanded 0.7 percent in the three months ended March 31, from a 0.9 percent pace in the final quarter of 2015, Statistics New Zealand said. That's ahead of the 0.5 percent forecast in a Reuters poll of economists, and the Reserve Bank's 0.6 percent estimate.

The Reserve Bank held off cutting interest rates in its monetary policy statement this month as it awaited more data on the economy, including today's growth report and upcoming releases on inflation and the labour market. Today's better-than-expected figures reduce the chances of an imminent cut at the next scheduled Reserve Bank decision in August. The kiwi dollar spiked higher following today's data, and was trading at 70.74 US cents at midday, from 70.36 cents immediately before the figures were released at 10:45am.

"Today's result was a little above the RBNZ's June MPS pick and so at the margin should reduce the odds of an August rate cut," ANZ Bank New Zealand economist Philip Borkin said in a note. "However, the upcoming CPI and labour market data should carry far more weight in that regard."

ANZ's Borkin said the odds still favour a cut in interest rates in August, due to the high kiwi dollar and the uncertain global environment, however "it is not a conviction view".

"Despite the upside surprise, the data confirms a modest softening in momentum relative to the strong pace of growth seen over the second half of last year, where growth averaged close to a 0.9 percent quarterly pace," Borkin said. "It is also a reasonably soft result in per capita terms, with the economy barely treading water over the quarter."

GDP per capital edged up just 0.1 percent in the first quarter, slowing from a 0.3 percent pace in the final quarter of 2015.

Twelve of 16 production-based industries recorded growth in the latest quarter, led by construction which grew 4.9 percent, the fastest quarterly rate since March 2014, with all construction industries showing growth and led by trade services and heavy civil engineering.

That reflects greater investment in construction, as residential building rose 4.2 percent, non-residential building increased 4.4 percent and other construction advanced 12 percent, the highest quarterly growth rate since June 2014, due to increases in infrastructure such as roading and telecommunications.

On an annual average basis, GDP grew 2.4 percent, in line with expectations.

ANZ's Borkin said he expects reasonable rates of growth to continue over the next year or so.

Service industries grew 0.8 percent in the quarter, led by health and retail trade. Healthcare and residential care rose 2.7 percent, the highest quarterly growth rate since June 2005, reflecting higher demand for services from a growing population.

Manufacturing declined 0.4 percent due to a drop in food, beverage, and tobacco manufacturing.

On an expenditure measure, GDP grew 0.5 percent in the March quarter, led by a 2.4 percent rise in fixed-asset investment, due to increased investment in residential building and other construction. That lags behind expectations in a Reuters poll for a 0.6 percent gain in the quarter.

(BusinessDesk)