KEY POINTS:
Weaker than expected economic growth in the third quarter has reduced but not eliminated the chance that the Reserve Bank will raise interest rates in January, economists have said.
Statistics New Zealand today revealed gross domestic product grew just 0.3 per cent in the three months to September.
"This does not rule out a hike. It probably brings us back from the brink," UBS economist Robin Clements said.
"It just makes it more difficult for the bank to hike, not impossible."
He said the key message people should take from today's announcement was that growth was half the Reserve Bank's forecast of 0.7 per cent and the market's forecast of 0.6 per cent.
Clements said he was sceptical about theories citing capacity constraints and the running down of inventories as an explanation for the lower GDP figures.
"At first blush it seems to me there is not a lot of growth anywhere and that's why we've got a soft number."
ASB treasury economist Daniel Will agreed that the lower GDP figures did not take a January rate hike off the table.
Wills said although the headline was below expectations the data was largely backward looking, and figures since then - particularly surrounding the housing market - had generally exceeded expectations.
"Although obviously the RBNZ will take some comfort from continued strength in exports in the third quarter and just modest growth in consumption, all the indicators for the December quarter suggest the trade sector will remain under pressure, certainly in the near term, with the continued strength of the New Zealand dollar."
He said the ASB was retaining its forecast of no change to the official cash rate in January, but would look at a revision in early January based on the latest housing data.
Meanwhile, Deutsche Bank's chief economist Darren Gibbs predicted a rate rise.
"The economy has moved a long way since the third quarter, which is nearly three months ago now, and the key leading indicators suggest the economy has picked up," he said.
Gibbs said the only way to get the New Zealand dollar down was to get on top of the housing market.
"I think we need to have another crack at getting the housing market back under control."
It might appear bizarre to hike rates in order to get the currency down, he said, but currency responded to where interest rates were expected to be in the future - rather than the present.
"So by hiking rates in the immediate future you raise the prospect that you might be able to cut rates later on," said Gibbs.
