By BRIAN FALLOW
WELLINGTON - New gross domestic product figures are expected to show slower but still robust growth, as the economy shifts its weight from the domestic to the export leg.
In a Reuters poll of 14 forecasters this week, the median pick was for a 0.7 per cent GDP increase in the March quarter.
That would be a slowdown from the heady pace of 2.5 and 2.2 per cent in the September and December quarters.
But it would still represent annual average growth of 4.3 per cent over the past year - the best result since 1995.
Some markets economists, impressed by the unexpected strength of building starts in the March quarter, expect the growth number, out on Monday, to come in at 1 per cent or better.
However, that extra growth is borrowed from the June quarter, with higher interest rates already taking a toll on building consents, and they forecast growth over the two quarters to average out at 0.6 or 0.7 per cent.
Westpac economist Michael Jansen is forecasting a 1.1 per cent increase in GDP in the March quarter, more than a third of it from the construction sector.
Smaller contributions are expected from agriculture, transport and communications, and the finance sector.
Manufacturing, which grew strongly late last year, is expected to make a more modest but still positive contribution.
"In general, the economic environment over [the June and sectors quarters] is expected to feature a buoyant export sector beginning to inject life into rural New Zealand via increased spending and investment," Mr Jansen said.
"On the other hand, higher interest rates and modest jobs growth are likely to dampen retail spending and residential construction in urban areas."
HSBC economists said that as growth moderated to 0.7 per cent a quarter, and with the Reserve Bank having already raised interest rates 2 percentage points over the past seven months, the case for further large rate increases was weak.
"The actions of the RBNZ to date, in conjunction with the weaker New Zealand dollar, have successfully moved the New Zealand economy back to a more sustainable growth path where the main driver is export growth," they said.
But they warned that further large rate rises from the Reserve Bank would see households more indebted and interest-rate sensitive than in previous cycles.
"At worst this could push the domestic economy back into recession, despite the solid gains made by the export sector."
Market analysts expect to see further rate rises from the Reserve Bank.
The median forecast is for an official cash rate of 7 per cent by the end of the year, up from 6.5 per cent now.
Most expect the bank's next increase to be 25 basis points on August 16.
Import prices rose 4.8 per cent in the March quarter, on top of a 5.5 per cent rise in December.
Combined with an unexpected increase in tobacco tax, that will push inflation higher in the year ahead.
Deutsche Bank senior economist Darren Gibbs said inflation could reach 2.7 per cent by next March, compared with the 1.7 per cent the Reserve Bank forecast last month.
The concern for the Reserve Bank would be that that triggered "second round" inflation via higher wage settlements.
But if the apparent slowdown in growth over the past couple of months was sustained, the risk of second-round effects would be somewhat lower.
"Barring evidence of a rebound in confidence we now expect the RBNZ to leave rates on hold in July," Mr Gibbs said.
"But, a 50-basis-point hike appears on the cards for August."
Export returns drive economy
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