New Zealand economy rocking on

Statistics NZ says NZ's GDP grew by 1% over the March quarter and by 3.3% over the March year. Photo / NZ Herald

Growth in other OECD countries relatively subdued

Paul Bloxham, the man who dubbed New Zealand "the rock star economy", is sticking to his guns.

HSBC economist Paul Bloxham believes NZ will be the rock star economy of 2014.

Bloxham, HSBC's chief economist for Australia and New Zealand, said the local economy was still powering ahead and was likely to outstrip other countries in the OECD.

Statistics NZ said on Thursday that New Zealand's gross domestic product grew by 1 per cent over the March quarter and by 3.3 per cent over the March year.

"New Zealand is still rocking," Bloxham said.

"We still think that New Zealand will be the rock star economy in 2014."

While the economy was performing strongly, the other developed world economies were not doing so well.

HSBC expects growth in the US this year to come in a little under 2 per cent and Europe's economy to grow by just 1 per cent.

"So amongst all the OECD economies, New Zealand looks as though it has a good chance of being one of the strongest performers ... this year," he said.

That, in itself, would present challenges.

"One of the challenges is that it puts more upward pressure on the currency," Bloxham said.

The Reserve Bank last week raised its official cash rate by 25 basis points to 3.25 per cent and is expected to keep raising rates to try to stave off inflation arising from strong growth.

Bloxham said the high growth/higher interest rate scenario was likely to keep upward pressure on the New Zealand dollar, which was trading yesterday at about US87c — just short of its record post-float high of US88.4c, set in August, 2011.

Domestic interest rates look set to be significantly higher than most of those in the developed world economies, he said.

At the same time, the US dollar has not provided what many expected would be a brake on further advances in the kiwi because the US economy has not fired up.

Key US 10-year bond yields started the year at 3 per cent and have since shrunk back to 2.6 per cent, indicating America has a long way to go before getting up to speed.

Bloxham said demand for New Zealand key exports of dairy and meat did not look like falling away any time soon because of ongoing strong demand from China.

China was in the midst of a transition from an investment phase, which demanded raw materials such as ore and coal — to a consumption phase, which placed greater demand on soft commodities such as dairy and meat.