New Zealand Economy Shows Tepid Rebound in 2017 -- Update

New Zealand's economy made a tepid rebound in the first quarter of 2017, as weakness in building activity weighed on growth--an outcome that could add to concerns the economy has departed the fast lane for longer than initially thought.

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%.

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

On a year-over-year basis growth showed even less of an improvement with the economy expanding 2.5% in the first quarter compared with 2.7% in the last three months of 2016. Average growth over the 12 months to the end of the first quarter slowed to 3% from 3.1% for calendar 2016.

Gains in the dairy sectors were outweighed by much lower building activity and other segments, Statistics New Zealand said Thursday.

"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. "At an industry level, 11 out of 16 industries increased this quarter, with agriculture and retail trade having the biggest increases, while construction was significantly down."

The latest figures may cast some doubt on the view that temporary factors such as poor weather and November's earthquake had simply nudged the economy down a gear during the previous quarter and that growth would regain speed in the first half of 2017.

Still, analysts have flagged an improvement in dairy production and exports among factors that should help growth regain strength in the current quarter to the end of June alongside continued population growth.

Economists at ASB Bank, who had predicted the 0.5% quarterly figure, said that despite two quarters of below-trend economic growth there were reasons to be optimistic.

"We remain confident in the medium-term growth outlook, which will be supported by high terms of trade, low interest rates and population growth," they wrote in a research note. "We continue to expect the RBNZ to leave the OCR on hold at 1.75% until late-2018," they said.

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

(END) Dow Jones Newswires

June 14, 2017 19:49 ET (23:49 GMT)