NZ economic growth slower than expected


New Zealand's economy grew 2.4 percent in 2001.

Geoff Hiscock
CNN Asia business editor

WELLINGTON, New Zealand (CNN) -- New Zealand's economy grew a less than expected 0.6 percent in the December 2001 quarter, suggesting inflation is not an immediate problem.

New Zealand's Reserve Bank Governor Don Brash cited inflation fears when he surprised financial markets by lifting the official cash rate from 4.75 percent to 5 percent last week.

Releasing the GDP figures Thursday morning, New Zealand government statistician Brian Pink said growth for the full year was 2.4 percent. That compares with 3.8 percent in 2000.

Pink said internal demand was up 2.5 percent in the quarter, reflecting higher consumer spending, a rise in new housing investment and increased business investment.

Internal demand was partly offset by a fall in export volumes, down 2.6 percent.

Most economists had predicted quarterly growth of 1.1 to 1.4 percent, following a 0.2 percent expansion in the September quarter. That would have given New Zealand growth of about 3.4 percent for the year.

More rate rises

HSBC Australia earlier this week predicted a 1.4 percent GDP gain, which it said would lead to a further interest rate rise of a quarter of a percentage point on April 17, and another on May 15.

New Zealand's finance minister Michael Cullen told CNN Thursday that some private sector economists had "got carried away" with their forecasts of the December quarter figure.

Cullen said the impact of the September 11 terror attacks in the U.S. on New Zealand's travel, tourism and retail sectors was worse than expected.

"We expect more strength in these sectors in the first and second quarters of 2002," he said.

Cullen noted that all major indicators, including business and consumer confidence, and housing starts, suggested the economy was strengthening and the underlying trend was upward.

Cullen also claimed that a delayed seasonal effect had an impact on December quarter exports, and there would be rebound in exports in the first half of 2002.

Agricultural exporter

New Zealand is a leading exporter of agricultural produce, including wool, meat, dairy products, fruit, vegetables and wine.

On Wednesday, March 20, New Zealand became the first country in the Asia Pacific region to lift rates since the September 11 attacks.

Brash foreshadowed further rises at the time, saying monetary conditions were "still stimulatory" and there would likely be a need to further reduce the stimulus.

Brash said New Zealand's economy had been stronger than expected and was already operating at "close to full capacity".

He said those pressures would likely grow further, in the absence of increased interest rates.