KEY POINTS:
Economic activity picked up in the last quarter of last year, albeit slower than forecast, but as in recent quarters, it was the wrong sort -- consumption-led.
The economy expanded by 0.8 per cent in the December quarter, taking Gross Domestic Product (GDP) growth to 1.5 per cent in 2006, Statistics New Zealand said today.
The quarterly growth was slightly below the 0.9 per cent average forecast made by economists and even further below the Reserve Bank's 1.0 per cent forecast.
Because the growth mainly came from increased household spending -- with cars leading the way -- while the productive side of the economy continued to shrink.
As a result, economists doubted Reserve Bank (RBNZ) Governor Alan Bollard would hold off from another threatened interest rate hike.
Westpac chief economist Brendan O'Donovan said domestic activity rebounded thanks to increased consumer spending and construction.
The disconcerting factor was that for eight consecutive quarters, activity in the goods-producing sector had declined on an annual basis, he said.
"The old imbalance story in the economy is still there in spades," he said.
It was confirmation of recent trends of strong consumer spending and the productive side of the economy struggling under the effects of a very high exchange rate.
However, ASB economist Nick Tuffley said there was a glimmer of hope Dr Bollard may stay his hand.
"The key point is that its (the RBNZ's) concerns about booming domestic demand will not have been inflamed by the latest release.
"For now that gives the RBNZ some breathing room to hold off from lifting interest rates further, and our view continues to be that the RBNZ is nervously on hold from here."
The quarterly growth rate was the best for six quarters.
Mr Tuffley said it promised for an annual rate of 2.5 per cent this year -- far better than the insipid sub-1.5 per cent rate of late.
Continued strength in the services sector that makes up two thirds of the economy, was the major contributor to growth.
On a quarterly basis, goods-producing industries rebounded from two quarters of decline with a 0.4 per cent increase.
But export volumes fell 2.7 per cent while imports increased 1.7 per cent.
Dairy exports fell 6.2 per cent although were up 14 per cent for the year.
The manufacturing sector shrank by 0.6 per cent, continuing a dismal run for the sector. Over the year it fell back by 1.4 per cent.
The services sector, which accounts for around two-thirds of the economy, grew by 0.9 per cent with the finance, insurance and business services group, together with the communication industry all contributing strongly.
Wholesale trade industries partly offset this growth with a 1.7 per cent fall.
Fishing, forestry and mining grew 4.1 per cent in the quarter, while agriculture increased by 1.8 per cent, electricity, gas and water by 2.4 per cent and construction 2.1 per cent.
Household spending increased 1.1 per cent in the quarter following a modest 0.3 per cent in the September quarter. It was up 2.0 per cent for the year, compared with a 4.7 per cent increase in 2005.
Business investment in fixed assets rose 1.4 per cent in the quarter following a 0.4 per cent increase in the previous quarter. For the year, business investment was up 3.7 per cent.
Government spending rose 0.8 per cent and was up 4.2 per cent for the year. Central government spending was up 0.7 per cent in the quarter while local body spending was up 1.8 per cent.
- NZPA
