19 Mar 2012

Figures expected to show tentative economic recovery

8:43 am on 19 March 2012

New Zealand's economy is expected to show tentative signs of rebalancing towards an export-led recovery in the final three months of last year.

Statistics New Zealand will publishes the balance of payments for the December quarter on Wednesday and gross domestic product figures on Thursday.

Economists are feeling confident they will show signs that the economic recovery is gaining ground.

Optimum weather and growing conditions in the final three months of 2011 boosted activity in the agriculture sector, including a 7% boost in milk production.

The Rugby World Cup encouraged spending, while a tight housing market, particularly in Auckland, underpinned construction growth over the quarter.

As a result, most economists agree with the Reserve Bank's prediction that the economy will have grown 0.6% in the December quarter.

Forecasters are also confident that the country's current account deficit, which widened to $2.7 billion in the September quarter, will shrink.

ASB economist Jane Turner says all the signs are there to suggest the economy is gaining a firmer footing.

Ms Turner is expecting the annual deficit to decline from 4.3% to just 4% and says much of that improvement over the past year will be on the back of a stronger traded goods balance.

She says dairy has performed particularly well over the last year and has had the combination of very good global prices and a very good production season.

Ms Turner says that has helped boost New Zealand's export returns and should contribute to a strong traded goods balance.

She says it indicates that exports are leading New Zealand's gradual recovery and signs are good for 2012.

TD Securities analyst Annette Beacher believes the economy grew 1.7% last year, which would be the highest annual growth rate since 2007.

And while she has also pencilled in the current account deficit to have shrunk in the December quarter, she is not so confident that it will last.

Ms Beacher says the current account deficit may widen again and be back to 4.5% to 5% by the end of this year.

She says it is likely that imports will be brought in to help the Christchurch reconstruction effort.

Ms Beacher says by and large, the New Zealand dollar has been staying higher for longer and that will crimp exporter earnings.

Westpac senior economist Michael Gordon does not accept the Reserve Bank's high growth, low inflation forecast for the next few years.

He says the central bank's view is that the high exchange rate and some of the easing in inflation perceptions lately will take care of the inflation pressures in coming years, but Mr Gordon is not convinced.

He says the Canterbury rebuild is still in the early stages, but in coming years there is the potential for it to cause inflation.

Mr Gordon says that is not an optimistic outlook because it is saying that New Zealand can not absorb this level of construction activity without creating inflation.