Australia's economy will leave New Zealand in the dust next year, economists say.
The prime driver across the Tasman will be record commodity prices and demand for resources from China, boosting the export sector, while New Zealand nurses a hangover from its debt-fuelled spending spree.
Economists, polled by Bloomberg News, say growth in Australia's $920.7 billion economy - the fifth-largest in the Asia-Pacific region - will accelerate to 3.3 per cent next year from 2.6 per cent in the September year as exports and business investment surge.
Meanwhile in New Zealand, the median forecast of 11 economists was for economic growth to slow to 1.5 per cent in 2006 from 2.4 per cent this year.
Growth in New Zealand's $149 billion economy is being crimped by slower home building and consumer spending after Reserve Bank Governor Alan Bollard raised the benchmark official cash rate to a record 7.25 per cent - one of the highest in the developed world.
In Australia, economists said record prices for minerals and demand from China would drive exports, which make up a fifth of the economy.
A Government report says exports from Australia, the world's biggest shipper of coal, iron ore and alumina, should reach a record A$120 billion in the year to June 30.
Stronger business investment should also boost growth from 2.5 per cent in 2005 as housing and consumer spending slows.
Companies forecast investment of A$63.62 billion in the year to June 30 - 11.6 per cent higher than forecast three months earlier.
Reserve Bank of Australia Governor Ian Macfarlane has said he expects a pick-up in exports and business investment to underpin growth in the economy as consumer demand cools.
Macfarlane and his board left the overnight cash rate target unchanged at 5.5 per cent on December 7, the day before Bollard's last rate hike of 25 basis points in New Zealand.
Recent GDP data showed New Zealand's economy expanded just 0.2 per cent in the third quarter, one-sixth of the pace in the previous three months. Meanwhile, the Treasury revised its growth forecasts lower to 1.7 per cent in the year to March 2007 and 2.5 per cent the year after.
After a spectacular consumer spending spree spurred by wealth effects linked to rapidly rising house prices, business has been nervously eyeing the prospect of a slowing economy or even a "hard landing", as the Reserve Bank kept putting interest rates up to rein in house prices and demand.
"The Reserve Bank is trying to dampen demand, and consumer spending is very much dependent on sentiment and confidence," Warren Bell, chairman of listed retailer Hallenstein Glasson, told his company's annual meeting.
"We cannot view the domestic economy in New Zealand with anything but caution."
Rising interest rates have underpinned the kiwi dollar, which rose to its highest against the Australian dollar in more than 20 years in December, crimping exports, which make up 30 per cent of the economy.
Still, the currency may decline next year as economic growth slows and pressure comes on Bollard to cut rates.
That should provide some relief to exporters, but any improvement in the sector due to a lower currency will take time to emerge.
- Additional reporting BLOOMBERG
Australia speeds up as Kiwis hit brakes
Ian Macfarlane
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