Gross domestic product (GDP) data due this week is expected to show New Zealand's economic growth slowed in the June quarter from the heady heights of the March quarter, economists say.
Market expectations are for real, production-based GDP to have increased by 0.5 per cent over the June quarter, giving an annual average growth rate of 2.1 per cent, or a 2.6 per cent improvement over the same quarter last year.
Economists say that the more subdued June quarter will be a natural adjustment from the 1 per cent surge in growth over the March quarter, which was driven by an extremely strong retail sector.
The data will nevertheless depict an economy that is grinding on, with all the attendant inflationary pressures that the Reserve Bank worries about.
Citigroup senior economist Annette Beacher expects growth to moderate even further to 0.4 per cent in the quarter.
"I think it is pretty clear that the strength in the March quarter was never going to be sustained," she says.
But Westpac Institutional Bank senior economist Doug Steel expects 0.8 per cent growth over the quarter, driven in part by continued strength in manufacturing.
Overall, he sees most of the growth coming from the services sector and from mining, particularly in oil and gas.
The Reserve Bank's forecast for the quarter is 0.5 per cent, so an outcome in the region of 0.8 per cent would be an unwelcome surprise to the bank.
"It would also represent the third consecutive quarter of the economy growing above potential and would also complete the strongest half-year performance since 2004, giving no comfort to the Reserve Bank on the inflation front," says Steel.
ASB Bank chief economist Nick Tuffley also expects to see a natural pause from what he saw as an unsustainable performance over the March quarter.
For the second half of the year, Tuffley says the underlying picture will be one of an economy that is just starting to feel the weight of tighter monetary conditions. He says the economy is entering a rebalancing phase, away from domestic spending strength and more towards export-based activity now that the New Zealand dollar has dropped back from historic highs.
Economists say Friday's GDP release will be overshadowed by rapidly changing developments in global credit markets.