NZ GDP growth picked up towards the end of 2006

GDP growth picked up towards the end of 2006 after having steadily slowed over the previous two years.

The lift in growth has placed renewed pressure on productive resources, which have been stretched in recent years following a sustained expansion in activity. Indicators suggest that the pick-up in growth continued at least into the first quarter of 2007. This momentum has been reflected in the housing market and the household sector more generally, but other indicators, such as employment and investment intentions, have also been strong. If the Bank had not already increased interest rates this year, demand pressures over the coming quarters would be more severe than we are currently projecting.
In contrast, the high level of the exchange rate is hindering growth in net exports. Consequently, the rebalancing of growth away from the domestic sector and towards the external sector, which was evident over 2005 and 2006, appears to have stalled. Looking ahead, domestic demand growth is expected to wane later in the year as recent increases in wholesale and retail interest rates act to slow household spending and the housing market. We have already seen some tentative evidence that this tightening in financial conditions might be beginning to temper household and business sentiment. With net exports under pressure, this would otherwise lead to a marked slowing in overall growth in activity.

Reserve Bank of New Zealand
6/18/2007 9:25:36 AM