New Zealand's economy accelerated in the fourth quarter, growing at the fastest clip in two years as manufacturing revived and companies built up inventories that had run down through the recession.
Gross domestic product expanded 0.8 per cent in the final three months of 2009, according to Statistics New Zealand, matching the median in a Reuters survey. Growth in the third quarter was revised up to 0.3 per cent from 0.2 per cent.
The data confirms the New Zealand economy's recovery is picking up pace after emerging from recession in the second quarter last year.
While the pace of growth in the fourth quarter was faster than the central bank's 0.6 per cent estimate this month, economists say it keeps Governor Alan Bollard on track to start raising interest rates mid-year.
"The economy is beginning to show genuine signs of life," said Stephen Toplis, head of research at Bank of New Zealand.
"It's further confirmation that we're clawing our way out of the mire, and can expect the next quarter to be about the same, or a little bit less."
ASB Bank economist Jane Turner said the results indicated businesses were confident in the economic recovery and increasingly preparing for the future.
In particular the inventory rebuilding process and business investment hit a strong pace earlier than was expected, she said.
This suggested that the underlying sentiment in business surveys was being translated into action, she said.
"Quarter four growth was slightly stronger than the Reserve Bank's NZ's expectation of 0.6 per cent, and the bank can now be less concerned about the recession the economy has just been through, and more concerned about inflation pressures building over the next year," she said.
Goldman Sachs JBWere economist Philip Borkin said the latest figures were hardly a rate to boast about.
"The New Zealand economy is expanding, but we continue to look for a sluggish recovery once an inventory rebuild is complete."
Recent data on the housing market and consumer was consistent with this, he said.
"For the Reserve Bank of New Zealand, we do not feel today's data will materially alter its core views on the outlook, despite only picking a 0.6 per cent quarter on quarter increase at its monthly policy statement.
"The key for the bank is whether more timely economic gauges are consistent with its solid growth expectations over 2010."
CTU economist and policy director Bill Rosenberg said the increase was good, but a lack of investment was a cause for concern for unemployment.
Investment contracted by 0.9 per cent in the quarter, and 12.2 per cent for the year.
Although this was largely due to falls in investment with intangible assets such as software and exploration, it did not bode well for future employment growth, he said.
"Our concerns that high unemployment will continue for at least the next two to three years remain.
"If the economy is growing, and corporate profits are increasing as indicated by yesterday's balance of payments report, the Government should have sufficient revenue to support the unemployed and to continue to support activity in the economy.
"We do not want to see jobless growth."
Manufacturing activity expanded 4.5 per cent, snapping seven quarters of decline, led by food and beverages. Wholesale trade climbed 2.7 per cent, also after falling for seven straight quarters.
Retail, accommodation and restaurants gained 1.7 per cent
"Manufacturing is benefitting from the strength of the Australian economy and the Aussie-Kiwi cross rate at the moment, and New Zealand demand is starting to pick up, although it's coming off an awfully low base," Toplis said.
Australia's economy, the biggest market for New Zealand exports, skirted recession last year, helped by demand for raw materials from China.
At the same time, the kiwi dollar has sunk to a 10-year low against its counterpart across the Tasman, making the nation's products relatively more competitive.
The kiwi recently traded at 77.18 Australian cents, from 77.31 cents before the GDP data. The New Zealand dollar was at 70.18 US cents, from 70.20 cents.
The economy expanded 0.4 per cent in the fourth quarter from a year earlier, compared to a 0.3 per cent pace in the Reuters survey.
Inventories grew by $172 million in the latest quarter, after running down over the previous nine months, reflecting restocking in anticipation of increased demand.
Household consumption spending grew 0.9 per cent.
Bollard this month predicted the recovery will be "subdued relative to previous recoveries" with households still cautious and business spending weak "despite much improved confidence."
The economy still faces headwinds. Unemployment is sitting at a decade-high 7.3 per cent, workers are feeling less confident about their current circumstances and property investors are looking ahead to the Budget with fear about the extent to which their tax breaks will be eliminated.
Among indicators of consumer activity, figures this month showed spending debit and credit cards fell 0.4 per cent in February, while January core retail sales were weaker than expected.
- WITH NZ HERALD
