Economic growth may beat 1.5% quarterly forecast

4.00pm

Economists suggest the economy grew 1.5 per cent in the March quarter, but some say even this healthy expansion rate may be an under-estimation.

Private forecasting firm Infometrics is the most bullish, with a 2.1 per cent forecast.

Infometrics economist Andrew Gawith said all the indicators, including the previous laggard of exports, were positive in the quarter, with the construction and manufacturing sectors playing starring roles.

Statistics New Zealand releases the quarterly economic stock-take on Friday.

Citigroup economist Annette Beacher said a relentless appetite for imports was expected to offset otherwise strong growth in consumption, investment and exports in the quarter.

"1.4-1.5 per cent is outstanding compared to the rest of the world, and especially Australia," she said.

Growth in Australia in the March quarter was a surprisingly weak 0.2 per cent, giving a 3.2 annual growth rate.

"We believe that upbeat global growth will again see New Zealand perform 'better than expected' in the coming year," Ms Beacher said.

The 13 economists polled by Reuters expect Friday's figures to show the economy grew by 3.5 per cent in the year to March. That's in line with the Reserve Bank's forecast but ahead of Treasury's 3.3 per cent budget prediction.

However, Ms Beacher and others now believe that the slowdown to a 2.5-2.8 per cent growth rate forecast by the Government agencies for 2005 and 2006 may not occur.

She is predicting that export growth, fuelled by a resurgent world economy, will take over from domestic spending to drive the growth engine. She sees growth of 3.5 per cent in the March 2005 year, only slowing to 3.2 per cent in 2006. Domestic demand will shrink, which is seen as a healthy outcome given its recent growth of around 6 per cent.

"We will see a more broad-ranged growth than we have seen for some time," Ms Beacher said. Trade would be a positive contributor to the growth rate for the first time since mid-2001.

Virtually all economists are agreed that a further hike in interest rates will be announced by the Reserve Bank on July 29, but yet another rise in August may be dependent on how rapidly immigration slows, and how the housing market and dollar perform.

"It is the surge in the supply of housing at a time when demand is beginning to abate, which will help ensure a downward correction in house prices and impinge on economic growth next year," said Westpac chief economist Brendan O'Donovan.

He is forecasting muted growth in the current June quarter to counter-balance the "excesses" of the first quarter.

"In particular, consumer and construction spending are likely to be a lot softer."

"The very factors that spurred the housing market on -- strong immigration, low interest rates, and aversion to other investment vehicles -- have all turned around."

Because the expectations for growth are so high, Ms Beacher said there was a danger financial markets could react negatively, unless the 1.5 per cent figure is exceeded.

- NZPA