The Reserve Bank is expected to keep raising interest rates, despite figures showing a much slower recovery than seen in past rebounds from recession.
Statistics New Zealand figures showed gross domestic product up 0.6 per cent in the March quarter, slower than the 0.9 per cent in the December quarter.
The figures showed the economy was still only halfway through recovering the ground lost during the recession, economists said.
The pace of this recovery is only a fraction of other rebounds seen in the past 20 years, as the economy slowly picks up after the global financial crisis.
The March quarter figures showed a typical export-led recovery, with a lift in the production and export sectors, but consumer spending and house building is slow.
Manufactured exports across the Tasman were supported by a favourable exchange rate, economists said. However, manufacturing was still down about 10 per cent from peak levels seen in 2007.
Forestry was up more than 5 per cent, with strong demand for logs from Asia, especially China.
But consumer spending and the services sector were still struggling, with private consumption spending up just 0.2 per cent. House building and business investment were sluggish, and tourism spending was down.
There was also a 2 per cent fall in communications services, with fewer minutes on cellphone calls, with Telecom's XT network outages in the first couple of months of the year.
The consumer slowdown in the quarter saw the pace of growth "wobble" according to Westpac Bank economists, but the Reserve Bank would still steadily hike official interest rates in the next two years.
A fortnight ago the Reserve Bank lifted the official cash rate to 2.75 per cent, the first rise since 2007.
ANZ Bank was expecting a more cautious approach from the Reserve Bank with three more rate rises this year to 3.5 per cent, but then a pause to assess the state of the economy.
Bank of New Zealand said there was enough growth in the March quarter, with a better composition, to keep the Reserve Bank raising rates. BNZ forecast 25 basis point rises every six weeks, till late next year.
However, there was still greater potential for "unpleasant rather than pleasant surprises" on financial conditions and the wider world, as well as GDP and inflation, BNZ said.
The March quarter was a patchy recovery and much slower than in past rebounds, though BNZ forecast a 1 per cent growth in the June quarter.
In the early 1990s rebound from recession, a year into recovery GDP was up more than 7 per cent, and in the late 1990s it was up almost 6 per cent after a year.
So far, the economy has grown just 1.9 per cent this time and remains 1.6 per cent below the 2007 peak.
March quarter gross domestic product was up 0.6 per cent.
Result was in line with market expectations, but down on Reserve Bank estimate of 0.8 per cent growth.
Primary industries up 1.7 per cent.
Manufacturing up 1.6 per cent.
Forestry and logging, up 5.3 per cent, with Asian demand for logs.
Communication services, down 2 per cent, due to fewer phone call minutes.
Wholesale trade, up 1.4 per cent.
GDP revised up to 0.9 per cent for December quarter.
GDP still 1.6 per cent below peak in the December quarter, 2007.
- © Fairfax NZ News
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