New Zealand's Economy Makes Tepid Rebound -- 2nd Update

By Ben Collins Features Dow Jones Newswires

New Zealand's economy made a tepid rebound in the first three months of 2017, as weakness in building activity weighed on growth, keeping the economy out of the fast lane for another quarter.

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While policy makers and economists had hoped for a better result to clarify that recent weakness in the economy was only temporary, analysts found enough positives in the data to remain optimistic that growth will pick up over the coming quarters.

The figures released Thursday showed that the economy expanded 0.5% in the first quarter from the previous three months, compared with a 0.4% gain in the October-December period. Economists polled by The Wall Street Journal had expected the economy to grow by 0.75%. On a year-over-year basis the economy expanded 2.5% in the first quarter, slowing from growth of 2.7% in the last three months of 2016.

Gains in the dairy sectors were outweighed by weaker building activity and softness in other segments, Statistics New Zealand said.

"Much lower building activity combined with mixed results for the service sector took the shine off higher dairy production and saw a second quarter of moderate overall GDP growth," said Gary Dunnet, national accounts senior manager at the statistics body.

The New Zealand dollar slid against the greenback after the data was released, falling to US$0.7246 from around US$0.7264.

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Analysts had expected a better result given that poor weather and November's earthquake were seen as the main factors behind the slowdown at the end of 2016.

Economists at ASB Bank, who correctly predicted the quarterly figure, said that despite two quarters of below-trend economic growth, the economy would remain supported by strong terms of trade, low interest rates and the increasing population, and that the fall in construction activity would recover. An improvement in dairy prices would also support consumer and investment spending, they added.

"The stunning lift in plant and machinery investment is a very encouraging sign that businesses are seeing increased activity and willing to invest in greater capacity," they said, pointing to one of the positive surprises in the data.

Still, ASB warned that growth contributions from tourism and construction are likely to be smaller over the next few years and if the rest of the economy is not firing on all cylinders when growth slows in those sectors, GDP will struggle to lift above its trend rate.

Capital Economics downgraded its 2017 growth forecast to 3.0% from a bullish 3.5%, following the release, though Kate Hickie, an economist at CE, also found some reasons to be reasonably hopeful about New Zealand's economy.

"For one, evidence from building consents issued suggests there is a decent pipeline for construction work. What's more, with output rising in 11 of the 16 main sectors of the economy in the first quarter, there are still signs of strength," she said.

Average growth over the 12 months to the end of the first quarter slowed to 3% from 3.1% for calendar 2016.

Write to Ben Collins at ben.collins@wsj.com

(END) Dow Jones Newswires

June 14, 2017 23:43 ET (03:43 GMT)