KEY POINTS:
Since a host of recent indicators suggest the economy is now growing at a sprightly clip, yesterday's surprisingly weak economic growth data has not removed chances of a further Reserve Bank rate hike from the table, economists say.
Official data yesterday showed gross domestic product grew by 0.3 per cent during the three months to September and by 1.4 per cent over the year.
Economists had expected a quarterly figure of about 0.6 per cent, while the Reserve Bank had forecast 0.7 per cent.
Westpac economist Nick Tuffley said one of the key surprises was how subdued consumer spending was over the quarter.
On the face of it, that would appear to be welcome news for the Reserve Bank, which has said it would raise the official cash rate unless it sees signs of a sustained slowdown in domestic demand and the housing market. Data for the previous quarter, when overall growth was 0.4 per cent, had also showed a softening in domestic demand.
However, yesterday's data covers a period that ended almost three months ago. More recent data, including retail sales, real estate sales, and consumer confidence, have suggested both the retail and housing sectors may be coming back to the boil.
"All of those signs point to a pretty good contribution from the household in the December quarter, and we could well see GDP of 0.8 per cent through to 1 per cent," said Tuffley.
Deutsche Bank's Darren Gibbs agreed.
"We've got the makings already of a very strong retail quarter. I think we will see further gains in the building sector because residential is clearly picking up, and the fall in September quarter non-residential construction was overstated."
Tuffley and UBS economist Robin Clements said yesterday's data would at least buy time for the Reserve Bank, allowing it to sit tight on interest rates in January while it looked out for inflation to ease in the December quarter, signs of slowing domestic demand and a cooling housing market.
Both put the chances of a rate hike further into next year at 40 per cent.
However Gibbs believed the data had done very little to stay the Reserve Bank's hand in January.
"The vast majority of the data that we've seen has pointed to an economy that is reaccelerating and nothing we saw today changed that."
The New Zealand dollar fell almost half a cent to US69.25c immediately after the data was announced but recovered to close at US69.57c.
Growth data
* The economy grew by just 0.3 per cent in the three months to September
* That put annual growth at 1.4 per cent, the lowest in nearly five years.
* But more current data suggests the domestic economy is accelerating.
* That means a Reserve Bank rate hike, possibly even in January, is still on the cards next year.
