Most economists expect slight economic expansion

There is a small chance economic growth was much stronger than expected in the December quarter, but most economists tip expansion of less than 1 per cent in official figures due on Thursday.

The average market forecast is for 0.8 per cent growth in the quarter as the economy continues to pulls out of recession. The recovery is expected to improve during 2010, supported by a rebound in house building and manufacturing, economists said.

In the September quarter, the economy was barely growing, up just 0.2 per cent, with similar slight and patchy growth in the June quarter. The December quarter was expected to show a more broad-based though still modest rebound economists said.

Westpac Bank forecasts growth of 0.7 per cent in the December quarter, with anything less than 0.5 per cent "hard to imagine".

But the upside risks were "open ended". Surveys of confidence and business activity pointed to "very robust" growth of 1 per cent or more, so there was a small risk of a large surprise in the figures, Westpac said.

The growth figures were not likely to change the Reserve Bank's mind about keeping official interest rates on hold in April, but could be a pointer on the risk of a rise in rates in June, Westpac said.

The central bank said this month that it expected to start lifting rates "around the middle of 2010".

ASB Bank economists said the recovery from recession would be broader based in this week's figures.

ASB expected expansion of 0.5 per cent for the December quarter, with manufacturing set to rebound after being hard hit during the recession. That growth would be supported during the 2010 year by companies rebuilding stocks run down during the recession ASB said.

Stock building is seen as "first stage of every recovery" according to Westpac Bank economists.

ASB expected the Reserve Bank to start lifting the Official Cash Rate in June, starting with a 25-basis-point rise, with inflation becoming an increasing concern, despite a modest economic rebound.

Westpac said the December gross domestic product figures would show "a half-decent" rate of growth, but 0.7 per cent would be fairly disappointing in the context of the global recovery.

Manufacturing would be one of the points of good news, expanding close to 2 per cent, boosted by restocking, and strong demand in New Zealand and Australia, with exports across the Tasman supported by a low exchange rate with Australia.

But that would be after a "crushing" 16 per cent contraction for manufacturing in the previous 18 months, during the recession.

There were also expected to be signs of a consumer spending recovery in retail, accommodation and restaurant trade figures in the December quarter. House building may also have found a "firm footing" after a slump during the recession.

But the housing market remained weak, with house sales volumes down 10 per cent in the December quarter, hitting the real estate and finance sectors.

- © Fairfax NZ News