Growth forecasts accelerate

By BRIAN FALLOW

WELLINGTON - Though it is a month yet before the September quarter gross domestic product figures are released, all the indicators are pointing to a strong rebound.

Confidence that the recovery is back on track underlay the Reserve Bank's decision to raise interest rates 0.5 per cent last week and foreshadow another 1.5 per cent rise over the next 18 months.

The Reserve Bank is at the conservative end of forecasts in picking 1.3 per cent growth for the September quarter, coming off the June quarter's surprise 0.3 per cent contraction. WestpacTrust says 1.4 per cent, the Bank of New Zealand 1.5 per cent and Deutsche Bank 1.8 per cent if not higher.

Underpinning the rebound is a pick-up in primary production. "Runaway milk production, increased livestock production and strong forestry removals all point to a fully recuperated primary sector," says WestpacTrust.

That is reflected in the trade figures which while still showing strong import growth, are beginning to show healthier numbers on the outward side, with export receipts up 8.3 per cent in the September quarter compared with a year ago.

On the home front retail sales in the September quarter were strong, up 2.3 per cent in real terms, aided by a buoyant tourist sector.

BNZ economists said, however, that retail spending accounts for only about 60 per cent of consumption and GST receipts, a much broader indicator of final demand, showed spending had slowed on a year ago. Coupled with the fact that most of the employment growth in the quarter was in industries like agriculture and forestry that suggested that the main contribution to September's GDP growth would come from the external sector, they said.

Of the 25,000 more full time jobs over the past year, 23,000 were in the tradeables sector, even though the non-tradeables sector makes up the bulk of the labour market.

Perhaps reflecting that, the labour cost index out last Tuesday showed a modest 0.4 per cent increase in private sector salary and ordinary time wage rates, unchanged from the June quarter.

Another harbinger of mounting inflation pressures was provided by yesterday's producer price index. The September quarter's 1.4 per cent rise in input prices, reflecting higher crude oil prices and a weaker dollar, reverses the trend of falling input prices over the past year.