Statistics New Zealand releases gross domestic product figures for the first quarter on July 7, later than usual because of the disruptions from the Feb. 22 and subsequent earthquakes in the Canterbury region.
Hopefully, the impact of the quakes on the broader New Zealand economy will be as mild as the two-week delay with the GDP data. That was Reserve Bank Governor Alan Bollard’s take in his June 9 Monetary Policy Statement, when he said the wider impact on the economy appeared to have been “limited”.
He forecast GDP growth of 0.3% in the three months ended March 31 and 0.4% in the quarter just ended.
Bank economists are more upbeat. They’ve had the benefit of another month of economic indicators to gauge the pace of growth.
Retail sales grew more than expected in the first quarter, with the core measure excluding motor vehicles rising 0.9%. Manufacturing rose to its highest level in almost a year in May, based on the Performance of Manufacturing Index, while the services sector recorded its fourth straight month of gains.
Business confidence surveys are showing ongoing improvement in June, with one poll showing it is now at its highest since before the quake last September.
The funds that will flow for rebuilding Canterbury have already been detected in balance of payments figures for the first quarter, and construction work should pick up pace toward the end of this year – as long as the earth stops shaking enough to allow that to happen and for international reinsurance firms to start offering cover in Christchurch again. Bollard, meanwhile, has forecast quarterly economic growth will peak at 1.8% in the first three months of 2012.
One of the engines for resurgent growth is the record prices being enjoyed by farmers for their export commodities. At first, they focused on paying down debt – deleveraging – but now there’s evidence farmers are spending, allowing their good fortune to trickle into the broader economy.
That exporters can still garner benefits of strong world prices even with the kiwi dollar at a post-float high is testament to the strength of the boom. Having broken above 83 U.S. cents, currency strategists are wondering whether the New Zealand dollar could keep on climbing.
That’s going to come down to how New Zealand interest rates track against those of other nations whose currencies attract so-called ‘hot’ money in search of higher yields.
Based on the Overnight Index Swap curve, traders expect Bollard to raise the official cash rate by more than 60 basis points in the next 12 months, unlike the U.S. Federal Reserve and even Australia’s central bank, which are planning no such rise.
That will make the kiwi dollar look relatively more attractive than the greenback and narrow the gap with Australia’s benchmark rate, currently 4.75%, to the RBNZ’s 2.5%.
While the Reserve Bank of Australia may still move on interest rates before year-end, economic data across the Tasman Sea has been less rosy lately.
That all speaks to a kiwi dollar that could go higher and choke back export returns while returns to fixed interest investors should improve. Despite the risks to the predicted path of economic growth in New Zealand, 2011 still feels like the start of the real recovery we were all hoping for this time last year.