21 Mar 2013

Cautious optimism about economy

9:55 pm on 21 March 2013

The Government is expressing cautious optimism about the economy following the publication of figures showing it grew by 1.5% in the last three months of 2012.

Statistics New Zealand says, on an annual basis, the economy grew 2.5% to $209 billion, the strongest yearly growth since March 2008 when the economic recession began.

Fifteen of the 16 industry sectors tracked had positive growth, with agriculture, forestry and fishing recording the biggest increase at 2.6%. Manufacturing was the only sector to show negative growth at minus 0.5%.

Households spent more on televisions, furniture and appliances and used cars, while firms invested more in plant and machinery, offsetting a drop in Government spending.

Statistics New Zealand sounded a warning about the impact of the drought on growth in agriculture this year.

A pick up in activity had been expected following a slowdown in the middle of the year, but the Statistics New Zealand figures released on Thursday exceeded analysts' expectations.

Finance Minister Bill English expects the improvement will continue with the economy on track for growth of 2 to 3% or more over the next few years. However, he conceded the drought is likely to temper overall growth and, internationally, the problems of high debt and low growth remain.

Economic Development Minister Steven Joyce says New Zealand has had a good run in the past 12 months in comparison to the rest of the world but the country is not immune to what is happening elsewhere.

He said there can be no guarantee that the reasonable growth will continue over into the next period.

Mr Joyce said employment growth is also continuing to lag behind economic growth.

Opposition parties not impressed

However, opposition parties were not impressed by the figures.

Labour's finance spokesperson David Parker says GDP growth has not been matched by a corresponding increase in jobs.

And Green Party co-leader Russel Norman said the statistics show the tradable sector shrunk by about 0.6% as a percentage of GDP while the non-tradable sector grew by over 2%. As a result, the country was continuing to spend more than it earns overseas.

"What we're seeing is an economy that is becoming even more imbalanced than it already was," he said.

Meanwhile, Bank of New Zealand chief economist, Tony Alexander, believes the economy will not keep growing at the rate it did in the last quarter of 2012.

He said few economies, apart from emerging ones, achieve 1.5% growth for more than one quarter in a row.

He does not think New Zealand will be an exception and points out that the impact of the drought alone could shave 1% off growth.

Westpac chief economist Dominick Stephens said the data was much stronger than anticipated.

He said that's in line with the view that rebuilding Canterbury will be the main influence on the New Zealand economy and will produce high rates of GDP growth, inflation pressures and, eventually, interest rate hikes.