New Zealand's economy is recovering from a slowdown and probably grew close to 1 per cent in the fourth quarter, finance minister Michael Cullen said today.
In a speech to an international investor group, Cullen said the economy had been through a cyclical downturn but strong business andconsumer confidence, commodity prices, a tight labour market and a buoyant housing market were driving a recovery.
"GDP grew at somewhere close to 1.0 per cent in the last quarter of last year," Cullen said. "Treasury expects domestic demand to keep growing strongly at least through the early part of this year."
A preliminary Reuters poll has a median forecast for 0.9 per cent growth for the fourth quarter and an annual rate of 1.6 per cent. Annual growth slowed to a seven-year low of 1.4 per cent in the quarter ended September.
Cullen said the strength of the economy and an imbalance where the domestic sector was much stronger than the export sector had prompted the Reserve Bank of New Zealand to raise interest rates last week.
The Reserve Bank raised its official cash rate by a quarter-point to 7.5 per cent last Thursday, citing the need to stifle medium term inflation pressures from the strong domestic economy, and said more rises might be needed unless the property sector showed clear signs of cooling.
Cullen said the official cash rate would remain the main tool of monetary policy despite the Reserve Bank governor talking about possible supplementary measures to manage inflationary pressures.
"I want to stress there are no formal proposals on any of this yet and any policy option would need broad support," he said.
Cullen repeated previous comments that the government would not be cutting taxes or increasing spending, which might stoke inflation or prompt higher interest rates.
However, he said a new government-backed retirement saving scheme -- KiwiSaver -- which comes into force on July 1, would boost household savings and thus help take the pressure of interest rates.
