Commercial banks forecast 0.5% GDP growth

Hydro-electric generation was one of several areas where there was a decline in the most recent quarter; pictured, the Clyde dam in Central Otago. Photo: Getty Images

Growth in the quarterly gross domestic product (GDP) flagged in data out this week is expected to reflect a slowing in the economy, from a combination of high petrol prices and slower pace in agriculture and tourism.

While the Reserve Bank is picking 0.7% growth for the quarter to September, Westpac and ASB are both picking 0.5% growth, halving the previous quarter's growth of 1%.

ASB senior economist Jane Turner said the expectation of 0.5% was due to slowing demand for both goods and services, after high petrol prices and weak business confidence "sapped economic momentum" during the first half of the year.

"This recent momentum appears to have fizzled out and we believe the pace of growth slowed again over the second half of 2018."

GDP is one of the main economic measures, showing the value of goods and services produced in the country, and will be released on Thursday.

"The sharp increase in petrol prices squeezed household budgets and appears to have directly impacted broader economic activity," she said.

Meanwhile, weak business confidence had continued to linger, potentially undermining the relatively strong fundamentals that remained in place, including high terms of trade, strong population growth and low interest rates, she said.

Westpac senior economist Michael Gordon said the combination of agriculture, electricity generation and tourism declined, or grew more slowly, for the September quarter.

"The underlying picture remains of an economy that has trundled along slowly but steadily over 2018," he said.

Mr Gordon expects the current account deficit to widen to 3.6% of GDP.

"New Zealand's trade performance has deteriorated over the last year, but we suspect that some of the drivers of this are temporary," he said.

Mrs Turner said the decline for the quarter was due to soft construction activity growth, weak manufacturing, weakened retail demand, softening housing demand and credit appetites.

There was also very weak services activity, with data pointing to a fall in business services activity.

On the positive side of the ledger, Mrs Turner said wholesale trade was boosted by strong export activity, in particular kiwifruit and meat, and there should be a recovery in mining activity, given the previous quarter's gas production disruption following the discovery of a leak in the Pohokura pipeline and the subsequent unplanned shutdown.

Mrs Turner expects the soft growth to linger into fourth-quarter data, with 0.5% quarterly growth "pencilled in" again.

She believed 2019 would be a "crossroad", questioning whether the slowing growth in the second half of this year would be temporary

or would growth bounce back in 2019 now that petrol prices had fallen.

"Or, is this is the beginning of another period of modest growth, similar to what set in over 2017?" Mrs Turner asked.

simon.hartley@odt.co.nz