GDP figures unlikely to impact cash rate

Governor Adrian Orr reiterated that "the direction of our next OCR move could be up or down. Photo / Getty Images

Strong economic growth should calm expectations for a possible rate cut this year.

Second quarter gross domestic product grew 0.8 per cent for an annual gain of 2.5 per cent, according to a Bloomberg survey of 16 economists. The Reserve Bank forecast 0.5 per cent quarterly growth.

ASB Bank senior economist Jane Turner says expected quarterly growth of 0.9 per cent would be a significant surprise for the RBNZ but is unlikely to shift the track for the official cash rate.

"The average pace of growth over the first half of 2018 was hardly spectacular, particularly given of all the supports underpinning the economy such as low-interest rates, high terms of trade and high rates of population growth," she said.

At the August rate review, the central bank kept the OCR at 1.75 per cent and pushed out the timing of the first rate hike, citing weak growth as a concern. Governor Adrian Orr reiterated that "the direction of our next OCR move could be up or down".

Turner said the economy looks to have "sparkled" over the second quarter. Still, indicators suggest momentum may have "fizzled out" in the current quarter. She expects third-quarter growth of 0.6 per cent growth.

"The key area of concern is the continued slide in business confidence and the slump in business employment and investment intentions."

ANZ Bank New Zealand senior economist Liz Kendall said the economy likely grew 0.7 per cent in the second quarter, boosted by temporary factors such as a weather-related recovery in milk production, livestock slaughtering lifted by Mycoplasma bovis, and recent population growth.

However, annual growth continues to slow from the 4.5 per cent pace of mid-2016 and "there are concerns about the degree of economic momentum".

She particularly noted the subdued read coming from business confidence surveys and the fact the RBNZ has expressed concern about the outlook for activity.