KEY POINTS:
The economy expanded at a faster-than-forecast 0.7 per cent in the June quarter, Statistics New Zealand said today.
Economists on average and the Reserve Bank had forecast Gross Domestic Product (GDP) would grow by 0.5 per cent. The stronger-than-expected growth means the Reserve Bank is likely to hold interest rates high for longer.
Adding to pressure was an upward revision to March quarter growth - from the initially reported 1.0 per cent to 1.2 per cent.
That means GDP for the June year grew an inflation-adjusted 2.2 per cent against economists' forecasts of 2.1 per cent. The growth rate was up from 1.7 per cent in the March year.
National disposable income per capita rose 2.0 per cent in the June year.
SNZ said domestic spending increased 1.5 per cent in the quarter, continuing on from the strong growth in the March quarter.
It said that although last quarter's growth was primarily driven by a large rise in household consumption, this quarter's growth was the result of increased investment in inventories with comparatively modest growth in household consumption.
A negative trade balance partly offset the strong domestic result.
Manufacturing activity increased by 0.5 per cent in the quarter. Increases in machinery and equipment manufacturing, and wood and paper product manufacturing more than offset a decline in petroleum refining which resulted from a one day maintenance shutdown of the Marsden Point refinery.
Export volumes were up 0.5 per cent in the quarter and up 3.3 per cent for the year. Both meat and dairy volumes were down in the quarter with dairy exports coming off a particularly strong year, and meat exports down due to reduced slaughtering.
Import volumes were up 2.5 per cent following a 3.7 per cent increase in the March quarter.
For the year, manufacturing activity fell by 1.4 per cent.
Mining activity increased strongly during the quarter due to greater volumes of oil extraction. Further growth is expected as the Tui oil field comes online in the September quarter.
Service industries were up 0.9 per cent in the quarter following a 1.1 per cent increase in the March quarter.
Construction activity fell 0.8 per cent in the quarter mainly due to a decrease in non-residential building. It was down 2.3 per cent for the year.
Gross fixed capital formation fell 1.0 per cent in the quarter.
Activity in primary industries rose 0.2 per cent in the quarter and 2.1 per cent in the year.
There was a 0.8 per cent decrease in agriculture activity due to reduced deer and cattle slaughtering. But over the year, activity increased 2.2 per cent with dairy up 2.3 per cent.
Real disposable income increased by 3.2 per cent in the June year, growing faster than GDP due to New Zealand's improved terms of trade.
Citigroup economist Annette Beacher said the figures implied more upward pressure on inflation than the Reserve Bank was counting on.
While the data was "rather ancient", it followed a string of strong figures this week, she said.
A cut to interest rates was way off the Reserve Bank's agenda which, if things carried on like they were, could even have to re-establish a tightening bias.
Goldman Sachs JBWere economist Shamubeel Eaqub said that while the GDP headline looked good "the guts of it were pretty awful".
Domestic demand numbers were starting to show the underlying weakness in the economy. Most of the growth was in a surprise increase in household consumption and a large increase in stock accumulation, Mr Eaqub said.
"Stripping those out, it doesn't look like there is a lot of momentum for the economy, going into the September quarter, and certainly we're starting to see the impact of interest rate increases."
The New Zealand dollar rose from around US75.13c just before the GDP data to around US75.40c soon after.
- NZPA
