Economy picked to have beaten recession

The economy probably expanded in the first quarter, avoiding a recession, as retail spending and construction increased.

Gross domestic product was estimated to have expanded 0.7 per cent after contracting 0.1 per cent in the fourth quarter, according to the median forecast of 13 economists surveyed by Bloomberg News.

Statistics New Zealand releases the GDP report tomorrow.

Reserve Bank Governor Alan Bollard has raised the benchmark interest rate nine times since January 2004 to a record 7.25 per cent to curb spending.

First-quarter growth may exceed the pace the central bank expects, suggesting Bollard has no scope to cut borrowing costs this year.

"For the Reserve Bank to be contemplating an easing, it would need to see signs that the economy is really tanking," said Darren Gibbs, chief economist at Deutsche Bank AG in Auckland.

"This economy is still pretty stretched."

The central bank on June 8 estimated that the economy expanded 0.5 per cent in the first quarter.

The rebound might be temporary because "economic headwinds" should crimp consumer spending in the year ahead, the central bank said in its quarterly policy statement.

Bollard said he was unlikely to cut the benchmark rate this year because he expected inflation would accelerate. Consumer prices would probably rise 3.9 per cent in the year ending June 30, he forecast.

The central bank is required to keep annual inflation between 1 per cent and 3 per cent.

Ten of 14 economists surveyed by Bloomberg News agreed that the interest rate would be unchanged until 2007.

The economy probably grew 2.1 per cent in the year ended March 31, the slowest pace since the 12 months to June, 2001, according to the economists surveyed. By the end of the year, annual growth may have slowed to 1.4 per cent, according to the median forecast of economists. Bollard expects 1.5 per cent.

- BLOOMBERG