KEY POINTS:
New Zealand's Treasury department raised its forecast for economic growth for the first quarter to 1 per cent in its latest roundup of economic indicators, released yesterday.
The department had previously forecast growth of 0.9 per cent in the three months to March 31 in the Government budget on May 17.
"We believe the retail industry and some other parts of the services sector will be the largest contributors to around 1 per cent gross domestic product growth in the March quarter," the Treasury said.
Growth had accelerated in the first half of this year through strong retail sales, a tight labour market and wages growth, with high dairy product prices boosting some rural incomes.
But a fall in business confidence shown in the National Bank of New Zealand's business outlook last week pointed to an expected slowdown.
This expectation "is consistent with our view that growth will slow in late 2007", the Treasury said.
In last month's budget it forecast growth of 0.6 per cent in the third quarter and 0.4 per cent in the fourth quarter.
Data for the first quarter is due on June 29, but a preliminary poll has forecast a rise of 1 per cent in GDP.
The Treasury said some inflation pressures were easing but the strength of domestic activity was an issue.
"The inflation dichotomy continues with an appreciation of the exchange rate in the March quarter containing the prices of imported goods but a stretched domestic economy ensuring non-tradable inflation remains strong."
It said high commodity prices and market expectations of possibly a further interest rate by the Reserve Bank of New Zealand were underpinning the New Zealand dollar.
The central bank is due to release its latest monetary statement tomorrow with expectations that it will leave its official cash rate unchanged at 7.75 per cent but issue a hawkish statement.
The RBNZ raised the cash rate in March and April by a quarter point because of the strength in the housing market and domestic consumption.
- REUTERS
