Economist survey tips 0.6pc growth

Construction work in Christchurch, along with a manufacturing boost and more animals being processed is tipped to push GDP growth to 0.6pc in the first quarter, according to a survey of economists.

New Zealand's economy probably grew at a slower pace in the first three months of the year, after expanding at the fastest clip in three years in the fourth quarter of 2012, led by construction and manufacturing.

Gross domestic product rose 0.6 per cent in the first quarter for an annual rate of 2.5 per cent, according to a Reuters survey of 10 economists. The figures are due at 10:45am on Thursday. The economy grew 1.5 per cent in the fourth quarter last year.

Economic data points to a continued pickup in construction activity driven by the rebuild of Christchurch and also more building work in the increasingly overheated Auckland property market. At the same time, drought spurred farmers to send more livestock to be processed, stoking manufacturing, while the impact of reduced production may not show up until the second quarter.

Growth in the first quarter "would largely reflect the effects of the drought and Canterbury earthquake rebuilding," said Nick Tuffley, chief economist at ASB. "Increasingly dry weather over late February and March led farmers to bring forward livestock slaughter and reduce milk production, but for the net impact to boost output in Q1."

The Producers Price Index release for the first quarter noted higher sheep slaughter numbers because of the drought and surplus dairy and beef cattle may also have made their way into the production chain in the face of prolonged dry weather.

The Meat Industry Association said in early April that plants "throughout the country are running flat-out to ensure that, where necessary, drought affected farmers can get stock off the farm and processed as quickly as possible."

The Economic Survey of Manufacturing, released on June 10, showed volumes fell 0.6 per cent in the first quarter while the value rose a relatively modest 0.2 per cent. Yet the latest results from the BNZ-BusinessNZ performance of manufacturing index, out last Friday, show manufacturing rose in May to its highest level since June 2004, led by new orders and production.

The PMI "puts upside risk on our manufacturing and overall GDP forecasts over coming quarters," said BNZ economist Doug Steel said after Friday's figures. "The chances that NZ's economic growth this year is stronger than we currently forecast are increasing."

Meantime, the $40 billion reconstruction effort in Canterbury and an overheating property market in Auckland drove the fastest growth in building work since the third quarter of 2008, with residential construction recording its biggest gain in a decade.

The volume of building work put in place rose a seasonally adjusted 5.8 per cent in the first quarter, underpinned by a 12 per cent boost in residential activity. Building work in Canterbury rose 23 per cent.

"The construction sector will be the star performer," said economists at Westpac Bank, who are forecasting GDP of 0.5 per cent.

First-quarter growth of 0.6 per cent would be just above the Reserve Bank's forecast of 0.5 per cent, published in the latest monetary policy statement on June 13, in which governor Graeme Wheeler indicated the official cash rate would stay at a record low 2.5 per cent through the rest of 2013.

Traders see 36 basis points of rate hikes in the next 12 months, based on the Overnight Index Swap curve.

On Tuesday, the government statistician is scheduled to release balance of payments figures for the first quarter. They're expected to show a current account deficit narrowed to $600 million in the first quarter from a gap of $3.26 billion three months earlier, according to a Reuters survey. The annual deficit narrowed to $10.06 billion, or 4.8 per cent of GDP, from $10.51 billion, or 5 per cent of GDP.