UPDATE: NZ economy softer than expected in 4Q

UPDATE: NZ economy softer than expected in 4Q, likely to remain subdued near term

(Recasts lead and updates to add comment from economists)

By Rebecca Howard

March 15 (BusinessDesk) - The New Zealand dollar fell a quarter US cent after news New Zealand's economy grew at a slower-than-expected pace in the fourth quarter and economists now expect near-term growth to remain subdued.

Gross domestic product expanded 0.6 percent in the three months to Dec. 31, versus a 0.6 percent expansion in the third quarter, and was 2.9 percent higher on the year, Statistics New Zealand said. Economists expected GDP expanded 0.8 percent in the quarter and 3.1 percent on the year, according to the median in a Bloomberg poll.

The New Zealand dollar was trading at 73.08 US cents as at 11:55 am, from 73.30 cents immediately before the release.

The weaker result was largely because unfavorable weather weighed on agricultural output, offsetting strong services activity. Agricultural activity shrank 2.7 percent in the period, having expanded 1 percent in the September quarter. Activity in the services industries – which accounts for about 66 percent of GDP – grew 1.1 percent in the quarter versus a 0.6 percent increase in the September quarter.

Westpac Bank senior economist Michael Gordon said the economy "appears to have lost some momentum over the course of the last year (barring any future revisions to the GDP data)," and noted that annual growth peaked at 4 percent in 2016 but slowed to 2.9 percent in 2017.

Looking ahead, "we expect growth to remain at a more subdued pace this year, as the new government’s policies – particularly around cooling the housing market – are expected to be a drag on activity on balance, at least initially," said Gordon.

Capital Economics Australia and New Zealand economist Kate Hickie also said the economy failed to regain any momentum at the end of last year and with net migration past its peak and business confidence remaining low, the recent strength of consumption and business investment won’t be sustained. "We expect growth to stay close to 3.0 percent in 2018, but the clear risk is that the slowdown to 2.5 percent that we expect in 2019 happens this year," she said.

ASB chief economist Nick Tuffley said he expects slower growth over the first quarter but is more upbeat about growth down the track. "We expect that business confidence will gradually recover as more policy details are finalised. The underlying fundamentals for growth remain supportive, and include low interest rates, record high Terms of Trade and increased fiscal stimulus," he said.

While ANZ senior macro strategist Phil Borkin agreed the economy has cooled, he said growth around trend of 3 percent "is nothing to be scoffed at," especially at a time when the economy has been grappling with a softer housing market, credit headwinds, late-cycle capacity pressures and increased political uncertainty. ANZ expects the current pace of growth to continue.

(BusinessDesk)

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