New Zealand Economy Grows Slower-Than-Forecast

Dec. 23 (Bloomberg) -- New Zealand’s economy grew less than economists estimated in the third quarter, driving the nation’s currency to a three-month low on speculation the central bank may not need to raise interest rates until mid-2010.

Gross domestic product rose 0.2 percent from the previous quarter, Statistics New Zealand said in Wellington today. That was half the median forecast of a 0.4 percent gain in a Bloomberg survey of 12 economists.

A decline in construction, manufacturing and business investment hobbled New Zealand’s recovery from its worst recession in 30 years. Reserve Bank Governor Alan Bollard said this month the bank may raise the benchmark interest rate from a record low sooner than he previously indicated should the economic rebound be sustained.

“The recovery is in train, but has been off to a subdued start,” said Khoon Goh, senior markets economist at ANZ National Bank Ltd. in Wellington. The data doesn’t “warrant hiking rates as early as March. We see June 2010 as the central case for when the tightening cycle starts.”

New Zealand’s dollar dropped to 69.75 U.S. cents, the lowest since Sept. 14, from 70.20 cents before the report was released. It bought 69.89 cents at 12.10 p.m. in Wellington. The currency had climbed 12 percent against the U.S. dollar the past six months and the NZX 50 stock index gained 14 percent on signs of a pickup in the economy.

Global Rates

Swaps traders are betting that the Reserve Bank of New Zealand will increase the benchmark rate by 203 basis points over the next 12 months, according to a Credit Suisse index.

“The recovery remains fragile,” Finance Minister Bill English said today. “To climb back up the world income ladder and to replace jobs lost during the recession, we need businesses to have the confidence to invest and create jobs.”

Central bankers around the world are assessing when to remove stimulus as the global recession abates. Australia and Norway have started raising rates and the Federal Reserve has committed to scale down buying of mortgage-backed debt.

Europe’s economy emerged from its worst slump in more than six decades, growing 0.4 percent in the third quarter from the previous three months. The U.S. economy grew at a 2.8 percent annual pace last quarter. Australia’s economy expanded in the three months through September for a third straight quarter.

Governor’s Comments

New Zealand’s central bank may begin to “remove monetary stimulus around the middle of 2010,” Bollard said on Dec. 10. In October, the governor said the nation’s benchmark interest rate would be kept on hold until the second half of next year.

The economy shrank 1.3 percent in the third quarter from a year earlier, today’s report showed. That compared with a 1.2 percent contraction estimated by economists.

“The central bank needs strong data in order to bring forward its tightening cycle to the same degree as the market has priced in,” said Stephen Toplis, head of research at Bank of New Zealand Ltd. in Wellington. “Is this the sort of data that would shift the Reserve Bank from its published view? You’d have to say no.”

Business investment fell 0.9 percent, the fifth straight decline, as companies spent less on plant and machinery, today’s report showed. Manufacturing dropped 1.9 percent and construction declined 4.4 percent.

Manufacturers, Retailers

Bridgestone Corp., the world’s largest tiremaker by sales, said in October it would close a plant in Christchurch, New Zealand, by the end of the year because of lower cost competitiveness.

Fisher & Paykel Appliances Holdings Ltd., the country’s biggest manufacturer of washers and dryers, said sales in the three months ended Sept. 30 fell 11 percent from a year earlier. Sales are likely to remain flat for the rest of the fiscal year, Chief Executive Officer Stuart Broadhurst said Nov. 27.

Smiths City Group Ltd. yesterday said sales at its furniture and appliance stores dropped 6.2 percent in the six months ended Oct. 31. “The retail environment has continued to be very tough and in big ticket, the worst for 20 years,” Chairman Craig Boyce said.

Warehouse Group Ltd., the nation’s biggest discount retailer, last month said sales were below expectations in the three months ended Nov. 1.

Household Spending

Household spending, which makes up 60 percent of the economy, rose 0.8 percent in the third quarter. Sales of cars, home appliances and other so-called durable goods gained 2 percent. Purchases of food and non-durable items fell.

Exports of goods and services were unchanged in the third quarter as increased spending by tourists offset a decline in commodity exports including meat and seafood.

The GDP deflator, a measure of prices, rose 2 percent in the year ended Sept. 30.

“GDP growth is showing little upward momentum from one quarter to the next,” said Ian Pollick, economics strategist at TD Securities in Toronto. “From a monetary policy perspective, this particular report is unlikely to light a fire under the RBNZ.”