Experts split on strength of economy

Primary industries have recovered this year. Photo / File

Economists are divided on the likely strength of GDP growth for the March quarter, which is to be revealed on Thursday.

ASB senior economist Jane Turner is picking growth of just 0.5 per cent for the first three months of the year.

Following a surprisingly weak fourth quarter of 2016, that would suggest an economy performing well below expectations.

"Growth of less than one per cent over six months does not fit with robust business confidence surveys, " she said. "The NZ economy is supposed to be humming on the back of strong population growth, improving export incomes and low interest rates ... sub-trend growth could be an early warning that the economy is not firing on all cylinders. "

But Turner's forecast is one of the most downbeat.

In its May Monetary Policy Statement, the Reserve Bank forecast quarterly growth of 0.9 per cent.

And in a Reuters poll of 11 economists, the median forecast was that GDP expanded by 0.7 per cent in the quarter, for an annual pace of 2.7 per cent.

Both ANZ and Westpac economists are picking 0.8 per cent growth for the quarter.

Westpac Banking Corp acting chief economist Michael Gordon said growth in the December quarter was hurt by a pullback in milk production, in response to low dairy prices and a temporary shutdown of the Maari oil platform.

"Both of these factors have since unwound, and accordingly we expect strong contributions to growth from the agriculture and mining sectors," he said.

Both he and ANZ's Phillip Borkin pointed to the construction sector weighing on growth.

"The biggest weak spot for the March quarter was in the construction sector. In particular, there was a sharp drop in non-residential building, concentrated in Auckland," said Gordon. Borkin and Gordon are forecasting quarter-on-quarter growth of 0.8 per cent.

The ASB's Turner also pointed to a fall in construction activity, due largely due to the "volatile and lumpy non-residential construction activity" and weak housing-related activity.

She argued that "excluding tourism and construction sectors, growth momentum may be comparatively modest."

But ANZ's Borkin said "manufacturing production is estimated to have lifted 1.3 per cent quarter on quarter, led by non-primary or 'core' production. That should more than offset a drop in construction activity (the first in close to two years)."

Recent data showed the value of New Zealand residential building work inched higher in the March quarter but total building values fell, weighed down by a sharp fall in non-residential construction.

Turner notes that regardless of the final number, "there is no urgency for rate hikes."

Last month, the Reserve Bank kept rates at 1.75 per cent and stuck to forecasts that suggest they could be on hold until September 2019.

The Reserve Bank has plenty of time to determine how strong the economy is and "can continue to hold rates for as long as necessary to jump-start broader consumer demand and investment spending," said Turner.

- Additional reporting BusinessDesk