March quarter GDP comes in softer than expected

The possibility of a Reserve Bank rate hike in July will likely recede with March quarter GDP (gross domestic product) data today coming in below the bank's and market's forecasts.

New Zealand's economic growth as measured by GDP remained steady during the quarter, rising by 0.6 per cent -- in line with the previous quarter.

The market had expected GDP to rise by 0.8 per cent in quarter, while the Reserve Bank forecast a rise of 1 per cent.

Today's figure is the 19th consecutive quarterly increase in GDP.

It was above a provisional OECD (Organisation for Economic Co-operation and Development) average of 0.5 per cent.

Including the March quarter, the annual growth rate is 4.2 per cent and in line with median predictions from economists polled by Reuters.

The New Zealand dollar, which today opened at US70.66c, fell to US70.35c shortly after the GDP figures were released.

Statistics New Zealand said growth during the quarter was sustained by a 1.3 per cent increase in internal demand, which was partly offset by a 2.6 per cent fall in export volumes.

Household spending continued to be buoyant during the quarter rising 1.8 per cent compared to 1.1 per cent during the December 2004 quarter and increasing 5.8 per cent in the March year.

The increase in household spending was driven by a 1.4 per cent increase in retail food expenditure.

Also contributing were services and durable goods.

Spending on household appliances, clothing and footwear was also strong. Expenditure on overseas travel rose 22.2 per cent during the period.

Residential building investment rose 4.4 per cent during the quarter following two consecutive quarterly falls.

For the year residential building investment at 2 per cent was well down on the 2004 and 2003 years when it was 15.8 and 22.6 per cent respectively.

Business investment in fixed assets was up 3.6 per cent for the quarter driven by a strong lift in spending on plant machinery and equipment.

Business investment was up 11.4 per cent for the year. Government spending was virtually unchanged for the quarter, up just 0.2 per cent but up 6.4 per cent for the year.

On the exports and imports side, merchandise exports were down 1.5 per cent for the quarter, with a 15 per cent fall in wood and wood product exports over the period being a key influence.

Dairy exports were down 1.1 per cent for the quarter. Import volumes were up 1 per cent for the quarter and 13.3 per cent for the year. Statistics NZ said the quarterly rise reflected strong internal demand.

Imports of machinery and electrical equipment were up 7.6 per cent for the quarter while food and beverage imports rose 11.4 per cent.

- NZPA