GDP growth twice as strong as forecasters picked despite earthquake.
The economy started the year with much more momentum than economists had thought, gross domestic product figures released yesterday indicate.
Even with the February 22 Christchurch earthquake in the middle of it, GDP grew 0.8 per cent in the March quarter - twice a strongly as forecasters had picked.
Statistics New Zealand has also revised up the GDP out-turns for the second half of last year by a cumulative 0.4 percentage points.
The resulting picture is of an economy with stronger underlying growth, but also correspondingly closer to the capacity limits which could drive up prices.
The dollar jumped on the news, topping US85c during trading yesterday, up from US82.14c on Wednesday night.
Bank of New Zealand economist Craig Ebert said the foreign exchange market had "sniffed the likelihood the Reserve Bank is behind the curve, and that is always a one-way bet for the currency."
The combined effect of the surprisingly strong March and the revisions to 2010 suggested economic activity was about 1.5 per cent higher than the Reserve Bank had thought when it made its emergency 50 basis points cut to the official cash rate on March 10, Ebert said.
"We estimate the earthquake knocked 0.5 percentage points off March quarter growth and other 0.7 off June. Without it, growth in both quarters would have started with a '1'," he said.
ANZ's head of market economics, Khoon Goh, said the stronger than expected March quarter data suggested less spare capacity in the economy than previously thought.
"With the economy set to strengthen over the course of this year, an official cash rate at 2.5 per cent is on borrowed time," he said.
Even before yesterday's data most forecasters had come to the view that the Reserve Bank would start to raise interest rates before the end of the year.
Manufacturing accounted for half the March quarter's jump in GDP.
Aided by a favourable exchange rate with Australia, the sector's largest export market, manufacturing value-added rose 3.6 per cent, on top of a 3.4 per cent increase in the December 2010 quarter.
Manufacturing activity is still 14 per cent below its peak in 2005.
But a more timely indicator - the BNZ Business New Zealand performance of manufacturing index - is well into expansion territory and stronger in May and June than it has been since June last year.
Agricultural activity was up 1 per cent, led by milk production. But mining fell 5.3 per cent and forestry activity slipped 0.1 per cent, though that followed a 6.1 per cent increase in the previous quarter.
Construction activity fell 4.3 per cent, but in the services sector both retailing and Government activity rose 2 per cent.
On the expenditure side, household consumption grew 0.4 per cent, the same modest pace as throughout last year. But within that there was a 3 per cent increase in spending on consumer durables, the largest for three years.
Investment spending fell 1.3 per cent, driven by declines in non-residential building work and spending on transport equipment.
Partially offsetting those declines, however, was a 5.5 per cent lift in investment in plant, machinery and equipment. That was consistent with imports of capital goods and a rise in domestic manufacturing of machinery and equipment, Statistics NZ said.
Net exports overall subtracted from growth, but less so than in previous quarters as export volumes continued to rise while imports fell.
For the March year as a whole the economy grew 1.5 per cent. But in per capita terms it is still 4 per cent smaller that at the December 2007 peak.
GROWTH SPURTS
* 0.8pc rise in gross domestic product for March quarter
* 3.6pc rise in manufacturing
* 1pc rise in agriculture
* 0.4pc rise in household consumption
* 4.3pc fall in construction activity
* 1.5pc GDP growth for year to March
