GDP likely to slow, not stumble

Growth figures due on Thursday are expected to show that the economy took a breather in the last three months of 2004.

The average pick among forecasters is that gross domestic product (GDP), a broad measure of economic activity, expanded 0.6 per cent in the December quarter.

That would be the same as the September quarter and well below the average quarterly growth of 1.1 per cent recorded during the past three years.

But economists warn that it will not be enough to reassure a Reserve Bank jumpy about inflation that the long-awaited economic slowdown is under way.

"It will take more than weakness in consumer spending and a fall in residential investment in the December quarter to sway the Reserve Bank from its tightening bias," Westpac economists say in a preview.

"It is more likely to see these outcomes as temporary blips, especially given the strength of retail sales in January and the renewed strength in house sales and house prices in February."

The Reserve Bank has forecast 1.1 per cent growth for the December quarter but some weak indicators out since it finalised its forecasts suggest it will have pulled back its expectations.

Manufacturing output fell 1.2 per cent in the quarter; manufacturing represents 15 per cent of the economy.

A fall in building work authorised, albeit from historically high levels, suggests a negative contribution to overall growth from the construction sector.

Bank of New Zealand economist Craig Ebert is picking a "lacklustre" performance from the agriculture sector in an unusually cold and wet quarter.

And the timber harvest was down.

"Thankfully, though, the rest of the economy looks to be growing strongly, driven by still robust retail and services sectors," Ebert said.

On the expenditure side of the books, consumer spending, which makes up about 60 per cent of the total, ran out of puff in the December quarter, with real retail sales in the non-automotive sectors up a scant 0.3 per cent.

Investment by businesses on the other hand has been running at historically high levels. Firms are running at close to full capacity and surveyed investment intentions are close to all-time highs.

Imports of plant and machinery have risen 22 per cent during the past year, but the Westpac economists note that most of that growth occurred in the first half of the year.

The external sector is expected to make a positive contribution to overall growth.

Export volumes largely reversed the 9 per cent fall recorded in the September quarter, while imports were up a modest 2 per cent.

ANZ National Bank economists expect Thursday's out-turn to confirm that the pace of economic expansion is moderating.

"But with strength remaining across a range of gauges - residential real estate sales, business confidence and retail sales - momentum is expected to remain solid, albeit at a more modest pace over 2005."

What's expected

* Manufacturing output fell 1.2 per cent.

* Authorised building work fell.

* 'Lacklustre' performance from agriculture.

* Timber harvest was down.