New Zealand's Growth Slows to 0.5%


New Zealand's economy grew at the slowest pace in a year in the third quarter as record-high interest rates curbed consumer spending and a rising currency crimped exports.

Gross domestic product increased 0.5 percent from the second quarter, when it expanded a revised 0.8 percent, Statistics New Zealand said in Wellington today. The median estimate of 11 economists surveyed by Bloomberg News was 0.4 percent.

Cooling expansion in the $104 billion economy may ease inflation pressures and reinforce speculation that the central bank won't raise its benchmark rate again. Governor Alan Bollard, who forecast 0.6 percent GDP growth, said this month that record borrowing costs are slowing spending and the property market.

Consumer confidence slumped to an 18-month low in the fourth quarter and business sentiment dropped for a second consecutive month in December, reports showed this week, adding to signs of a cooling economy.

Production at a new oil field contributed about half of the increase in New Zealand's GDP, the statistics bureau said. The Tui field began operating in July. Excluding mining, growth was just 0.3 percent in the quarter.

The economy expanded 3.3 percent in the quarter from a year earlier, compared with economists' forecasts for 3.2 percent.

Household spending, which makes up 60 percent of the economy, increased 0.3 percent in the quarter, slowing from a 0.5 percent gain in the previous three months. Spending on alcohol, food and other so-called non-durable goods fell 0.1 percent. Purchases of appliances and other durable items advanced 0.5 percent. Business investment dropped 0.8 percent.

New Zealanders are cutting back on purchases as they pay higher interest costs on their mortgages and credit cards. The lending rate on a two-year fixed home loan was 9.1 percent in September compared with 8.1 percent a year earlier.

Overseas sales of goods and services declined 0.6 percent in the quarter, with meat and dairy export volumes declining. Kiwifruit, lumber and crude-oil shipments increased.

New Zealand's currency has gained 7 percent this year against the U.S. dollar. A stronger local exchange rate cuts exporters' returns from their overseas sales.

Dairy shipments, which make up one-fifth of the nation's exports, fell because of a late start to the season and a buildup in inventories. That prevented Auckland-based Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, from taking advantage of record-high butter and milk powder prices.

Helping drive growth, government spending rose 2.1 percent and investment in new housing advanced 1.9 percent.


TradingEconomics.com, Bloomberg
12/20/2007 4:49:31 PM