Sept. 23 (Bloomberg) -- New Zealand emerged from its worst recession in three decades, unexpectedly expanding for the first time in six quarters on rising consumer spending and exports of logs and dairy products. The nation’s currency surged.
Gross domestic product increased 0.1 percent in the three months to June 30 following a 0.8 percent drop in the first quarter, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of 12 economists was for a 0.2 percent contraction.
New Zealand’s dollar rose to a 13-month high as traders increased bets that Reserve Bank Governor Alan Bollard may raise interest rates sooner than he indicated earlier this month. Bollard, who expected a second-quarter contraction, said on Sept. 10 the benchmark interest rate needed to stay at a record-low 2.5 percent until late next year.
“We see the scope for growth to add pressure to monetary policy expectations over the second half,” said Bernard Doyle, economist at Goldman Sachs JBWere Ltd. in Auckland. “We continue to believe the first rate hike will come mid-next year, but with a reasonable chance of an earlier move.”
New Zealand’s dollar surged as high as 73.12 U.S. cents from 71.94 cents before the report was released. It bought 72.66 cents at 1:15 p.m. in Wellington.
The currency has gained 2.8 percent in two days after the nation yesterday posted the narrowest current account deficit in more than four years. Fonterra Cooperative Group Ltd., the world’s largest dairy company, also raised its milk price forecast yesterday for the coming year, boosting farm incomes.
Rate Outlook
Traders expect Bollard will raise the official cash rate by 149 basis points over the next year as the economy recovers, according to a Credit Suisse index based on swaps prices. A basis point is 0.01 percentage points.
Bollard may be reluctant to raise the benchmark too soon because that may further stoke the currency and curb exports, which make up 30 percent of the economy. New Zealand’s dollar has gained 27 percent against the U.S. dollar in the past six months, the second best performing major currency after South Africa’s rand.
“The strength of the currency will continue to be a concern and a risk to the forecast recovery,” said Robin Clements, chief New Zealand economist at UBS AG in Christchurch.
The current account deficit narrowed to 5.9 percent of GDP in the year ended June 30, the smallest gap since the year ended Sept. 30, 2004, Statistics New Zealand said yesterday.
Fonterra raised its milk forecast 12 percent, citing increased global demand. Economists estimated that would add at least NZ$700 million ($510 million) to farm incomes.
‘Patchy Recovery’
Bollard this month forecast the economy shrank 0.1 percent in the second quarter and would undergo a “patchy recovery” in the second half of the year. He projected growth of about 0.8 percent a quarter in 2010.
Gross domestic product began contracting early last year after Bollard raised interest rates in 2007 to counter a housing boom and consumer spending that was being fanned by excessive borrowing.
An ensuing collapse in world trade and tight credit conditions stalled business confidence and demand for exports. The New Zealand dollar’s gain also curbed overseas shipments, which make up a third of the economy.
As sales slumped, companies shut plants and fired workers, pushing up the jobless rate to a nine-year high of 6 percent in the three months ended June 30.
Record-low interest rates, government spending and fewer New Zealanders heading overseas for higher-paid jobs has helped revive the housing market and consumer confidence.
House Prices
Second-quarter house prices rose for the first time in six quarters and have continued to gain, according to the government. Consumer confidence rose to an 18 month high in June, according to a Westpac Banking Corp./McDermott Miller Ltd. poll.
Household spending, which makes up 60 percent of the economy, rose 0.4 percent in the second quarter, the first gain in six quarters, today’s report showed.
Sales of food and other so-called non-durable goods gained 0.8 percent and spending on services increased, led by medical and health. Purchases of durable items such as cars, furniture and home appliances declined.
Warehouse Group Ltd., the nation’s largest discount retailer, said on Sept. 11 that sales increased in the three months ended Aug. 2, the first quarterly gain since early 2008.
Exports of goods and services increased 4.7 percent in the second quarter amid higher shipments of dairy products and lumber. Tourist spending in New Zealand declined. Import volumes slumped 3.8 percent.
Business investment increased 1.3 percent as companies spent more on software and on oil gas exploration, the statistics agency said. Plant and machinery investment fell.
Inventories declined by a record amount as demand for exports was met through existing stock rather than production, the agency said.
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