N.Z. Economy May Have Almost Stalled in Third Quarter

Wednesday, Dec 22, 2010

New Zealand’s economy may have almost stalled in the third quarter as the nation’s worst earthquake in eight decades slowed housing and manufacturing.

Gross domestic product rose 0.1 percent in the three months through September from the previous quarter, according to the median of 15 estimates in a Bloomberg News survey before a government report tomorrow at 10:45 a.m. in Wellington. The economy expanded 0.2 percent in the second quarter.

Slowing growth adds to the case for central bank Governor Alan Bollard to keep interest rates unchanged until at least the second quarter next year to revive consumer confidence from a 17-month low and bolster housing demand. That outlook has pushed the country’s currency down 6.7 percent from a 2 ?-year high reached in early November, and some economists predict it may weaken further next year.

“The economy has not gained as much traction as we had hoped through the middle parts of 2010,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. “The household sector has been very soft,” and the Reserve Bank of New Zealand may wait until June to raise the cash rate, he said.

Five of 12 economists surveyed on Dec. 10 by Bloomberg News expect Bollard will keep the official cash rate at 3 percent until the April-to-June period, and three forecast the next boost will happen after June 30. Four predict a move in the first three months of the year.

Bollard’s Forecast

A majority of economists surveyed predict third-quarter growth was slower than the 0.3 percent Bollard estimated on Dec. 9. His forecast was completed before reports that manufacturing sales and homebuilding shrank during the same period.

A government report earlier today showed New Zealand’s current-account deficit was NZ$1.77 billion ($1.32 billion) in the three months to Sept. 30 compared with a revised NZ$987 million in the second quarter, Statistics New Zealand said in Wellington today. That was narrower than the NZ$2.3 billion median estimate in a Bloomberg News survey of 15 economists.

After the report, the New Zealand dollar was little changed, trading at 74.37 U.S. cents at 11:40 a.m. in Wellington from 74.38 cents immediately before the data.

Growth hasn’t been as slow as 0.1 percent since the April- June period in 2009, when the economy was recovering from five straight quarterly contractions as the global credit crisis contributed to the nation’s worst recession in three decades.

2009 Recovery

Growth returned through the middle of 2009, buoyed by a housing recovery and demand for the nation’s commodity exports from China and Asia.

Still, the pace of expansion slowed as consumers and companies preferred to reduce debt rather than spend or invest. Four economists surveyed by Bloomberg expect the economy shrank in the quarter, and two expect no growth.

On Dec. 9, the central bank cut its 2010 growth forecast and said borrowing costs needed to stay low until the recovery became more robust.

Bollard lowered his 2010 outlook to 1.8 percent from 2.6 percent, citing domestic spending and the housing market.

Retail spending fell in July and was unchanged in August, although there was a gain in September before an Oct. 1 increase in the sales tax. A home-price index dropped in September and October, and prices declined in the third quarter from a March peak, the Real Estate Institute said last week.

Quake Effects

The magnitude 7 earthquake that rocked Christchurch city and surrounding districts on Sept. 4 curbed retail spending and manufacturing in the final month of the quarter as offices and factories closed, the central bank said Dec. 9.

The Reserve Bank of New Zealand has estimated the cost of the rebuilding will be at least NZ$5 billion ($3.7 billion) spread mainly over 2011 and 2012.

Sales at Smiths City Group Ltd., a Christchurch-based furniture and appliances retailer, fell 12 percent in the three months ended Oct. 31 from a year earlier, it said on Nov. 4. Roads around its central city store were partly or completely closed, the company said in a statement sent to the stock exchange.

Weaker construction, manufacturing and exports likely curbed growth in the quarter, economists said. The nation’s currency gained 7.2 percent against the U.S. dollar in the third quarter and yesterday was still about 6 percent higher than a year earlier.

Commercial Building

The value of residential construction fell 5.3 percent from the second quarter, Statistics New Zealand said on Dec. 8. Commercial building also declined in the quarter, reducing the demand for structural steel and reinforcing, Steel & Tube Holdings Ltd. Chief Executive Officer Dave Taylor told the annual meeting in Wellington last month.

Manufacturing sales fell for a third straight quarter, declining 1.4 percent, according to a statistics report Dec. 8. Export volumes fell in the third quarter led by meat, dairy and forestry shipments, according to figures on Dec. 10.

“The New Zealand economy has some serious structural and growth issues that will likely weigh on the currency in 2011,” TD Securities strategists including Annette Beacher, head of Asia-Pacific research in Singapore, wrote in a research note this week.

The South Pacific island’s credit-rating outlook was lowered to negative by Standard & Poor’s last month, and “it’s unlikely to make much progress in closing its output gap in 2011,” the TD Securities strategists said.

Still, farm production is expected to have rebounded after a drought affected milk production in the three months to June. Exports account for about 30 percent of New Zealand’s economy.

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