21 Jun 2012

English welcomes GDP news but says it won't last

4:51 pm on 21 June 2012

Finance Minister Bill English has welcomed news the economy grew faster than forecast for the first three months of the year.

Gross Domestic Product (GDP) increased 1.1% in the three months to the end of March, its fastest quarterly pace since 2007.

That is a faster growth rate than most forecasters, including the Treasury, predicted. Revisions to previous figures also show growth was stronger last year than reported.

Mr English says it is a good rate of growth but he does not expect it to last.

He says annual economic growth is not about to reach 4%.

Instead he says the economy is more likely to grow about 2% to 3% a year.

The strong growth for the first three months of this year was led by manufacturing and some services industries.

Retailing and accommodation declined by 0.6%, falling back from 2011 when the Rugby World Cup had kept the sector growing.

Statistics New Zealand revised upwards growth in every quarter of last year by between 0.1 and 0.2 of a percent.

In the three months to December the economy recorded 0.4% growth, revised upwards from the previous 0.3%.

The March quarter GDP figure is well above the rate predicted by economists.

Infometrics chief economist Gareth Kiernan says such a large increase could be a blip, particularly after weak employment data in the March quarter and weakening commodity prices.

"It's probably a little bit difficult to get a read on the underlying strength of the economy. This is a good quarterly result but how much of that will be sustained over the next couple of quarters is still open to question."

Mr Kiernan says the result is due in part to increased food manufacturing and milk production.

"It's interesting to see how much of that can be sheeted home to what have been pretty good growing conditions throughout summer."

The New Zealand dollar hit a fresh seven-week high against its US counterpart when the figures were released, rising half a cent to US80.07 cents before slipping back to just under US80 cents.