New Zealand’s economy expanded at a faster pace in the fourth quarter of last year, easing concerns of a pronounced slowdown that could force the central bank to cut interest rates.
GDP rose 0.6 percent, driven by construction and services spending and up from 0.3 percent in the third quarter, Statistics New Zealand said yesterday in Wellington.
While the growth matched economists’ median forecast, the annual pace slowed more than expected to 2.3 percent, the weakest since 2013.
New Zealand’s dollar climbed almost half a US cent after the release as investors scaled back bets on a cut to the official cash rate later this year.
The Reserve Bank of New Zealand (RBNZ) has said it is not planning to raise borrowing costs until early 2021 amid benign inflation and slowing global growth.
“The economy lost some momentum over the second half of last year, but not to the extent that we thought,” said Michael Gordon, senior economist at Westpac Banking Corp in Auckland, which expected a quarterly expansion of just 0.3 percent. “That gives us a bit more comfort about our view that the growth momentum will pick up again this year.”
The New Zealand dollar bought US$0.6920 at 1:19pm in Wellington, compared with about US$0.6870 before the report.
The currency had already surged just hours earlier as the US Federal Reserve surprised markets by signaling it would pause interest-rate increases this year after previously projecting two hikes.
The chance of an RBNZ rate cut by November edged down to 48 percent from 52 percent, according to swaps data compiled by Bloomberg.
Quarterly growth was slower than the 0.8 percent projected by the RBNZ in its policy statement last month.
“With GDP growth slowing over 2018 by more than the RBNZ had expected, and with downside risks to 2019 growth accumulating, there is still the risk of an OCR [official cash rate] cut in 2019,” said Jane Turner, senior economist at ASB Bank in Auckland.
Still, “the next likely move is a hike in 2021,” she said.
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