Bank forecasts positive growth for economy

The New Zealand economy is gaining ground with higher than expected growth expected during the last quarter, according to the latest Standard Chartered Bank Global Research.

The Study, released on July 14, attributed its optimism to a number of factors, including a more robust manufacturing, post-earthquake relief triggering recovery, revival in business and consumer confidence and the resurgence of the construction sector.

According to the Bank, the New Zealand economy grew by 0.8% during the first quarter of the year, assisted by production based activity.

Based on the economic indicators, Standard Chartered has revised the economy’s annualised GDP growth to 1.9% for the current year and to 2.9% in 2012.

“This indicates broad economic resilience in the face of the (earthquake) disaster. Half of the quarter-to-quarter growth (0.4 percentage points) in the first quarter of the year came from the manufacturing sector, driven by production of machinery and equipment. This reflects demand for replenishment of capacity that was damaged in the Christchurch earthquake in September 2010,” the Study said.

But private demand remained weak, and the higher rate of unemployment continued to affect household balance sheets, although expenditure on durable goods grew by 2.9% during the quarter.

“We expect the second quarter growth sustained with the fiscal relief provided by the Government. We have also seen a strong revival in business and consumer sentiment, which should drive domestic consumption and investment.

“The construction sector, which declined by 4.3% on a quarter-to-quarter basis, should see a boom in the second quarter as reconstruction projects being and the housing market shows signs of life after the correction that began in 2007,” the Bank’s Study said.

First-time homebuyers are evincing interest in real estate with housing prices beginning to rebound, the study said.

The widening trade surplus, higher dairy product prices and an overall rise in confidence are also beginning to spell positive growth.

However, the Bank was mindful of the possibility of the economy showing signs of strain after the existing momentum loses its phase.

Nonetheless, we remain concerned about the sustainability of the current strong growth momentum once these one-off supports dissipate.

“Improvement in the labour market has been subdued, with the unemployment rate at 6.6% (First Quarter); this will restrain the deleveraging process and the recovery in domestic consumption.

Despite signs of life in the housing market, transaction volumes remain low and the construction sector’s recovery will only be gradual. The restrictive budget (2011) includes a freeze on fiscal spending in nominal terms and reductions in tax credits and retirement savings.

This is also likely to moderate the pace of recovery,” the Study said.

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