KEY POINTS:
The economy is in a period of transition from one of strong growth to one of more moderate levels of activity, but high interest rates will nevertheless be around for a while yet, economists say.
Data on Friday showed New Zealand's growth rate eased to a seasonally adjusted 0.5 per cent in the third quarter as high interest rates curtailed consumer spending.
The result was only slightly above market expectations and just short of the Reserve Bank's own forecast of 0.8 per cent for the quarter.
Second quarter gross domestic product was revised up to 0.8 per cent growth.
The latest data showed household consumption rose 0.3 per cent in the third quarter ended in September, compared with a 0.5 per cent gain in the second quarter.
Nearly half the growth came from gains made in the mining and quarrying sector, and the start of production at Tui oil field.
There was little in the Statistics New Zealand release to change the broad thrust of market expectations as far as interest rates go, with most market economists not expecting a cut in the Reserve Bank's official cash rate until late in 2008.
"We have got a pretty strong view that in the third quarter, the economy was going through a transition period," Goldman Sachs JB Were economist Shamubeel Eaqub says.
Economists often lament the time lag between the end of the quarter and the release of GDP data, which was almost three months in this case. Much has happened since the end of September - house sales have fallen and weakness has crept into retail spending.
Economists see that as a sign of things to come.
Next year, we are going to see the economy slow down quite a bit, Eaqub says.
He says the Reserve Bank will need to see a number of things happen before it became more relaxed about inflation, which is widely forecast to exceed 3.0 per cent next year.
"What we need to see in the first half of next year is this housing downturn becoming more broad based, and for it to permeate right through the economy," he says.
Business confidence will need to come back and the Reserve Bank will need to see evidence of real pain in the economy, most likely in the form of job losses, before cutting its official cash rate back from the present 8.25 per cent.
Bank of NZ chief economist Tony Alexander agrees next year will be quiet for the economy but that rate cuts are some way off. "We think the next move will be an easing but not until maybe December next year," he says.
"You can't rule out another tightening but we don't assign that a high probability, given the clear signs of weakness in the domestic part of the economy and the risks of quite slow growth overseas."
