Economy squeaks ahead with oil

The oil industry is helping to keep the economy's head just above water, and while construction and manufacturing are still in recession, the overall outlook for next year and 2011 is better.

The economy remains on a slow grind out of the recession that began at the start of 2008, with some economists suggesting the Reserve Bank will keep interest rates low until the middle of next year.

But after a tough couple of years, the economy is forecast to expand about 2.5 per cent next year and close to 3.5 per cent in the following year, when the Rugby World Cup will be held in New Zealand.

Official figures out yesterday showed the economy grew weakly in the September quarter, up just 0.2 per cent supported by the oil production sector.

The figure was slightly weaker than the 0.3 per cent or so most expected, with manufacturing and construction down again.

The New Zealand dollar initially dipped on the news and ended the day at US69.92c, down almost half a cent on the day before.

Finance Minister Bill English said the growth figures were weak and the recovery was fragile, but it was still "positive news" and people could go into Christmas feeling more confident about the economy.

ANZ Bank economists said the recovery would be more modest than normal as people reduced debt, so the Reserve Bank would start to lift interest rates in June.

"There is simply not sufficient data to warrant hiking as early as March," ANZ senior economist Khoon Goh said. Others, such as ASB still picked rates to start rising in April.

But without the lift in the mining sector, the economy would have grown just 0.1 per cent, showing the weakness in many other sectors.

Statistics NZ also revised the June quarter growth figures from an initial 0.1 per cent to a new figure of 0.2 per cent. Revisions of earlier figures showed the recession was worse than thought.

Bank of New Zealand economists said the figures showed there was nothing to support the belief of some in the market that the Reserve Bank would need to start lifting interest rates sooner and faster than the Reserve Bank said earlier this month.

Bank of New Zealand forecast growth of 0.4 per cent for the December quarter, but annual growth of 2.5 per cent next year, with 3.4 per cent the following year. Growth would initially be driven by companies building up stocks that had been run down sharply during the recession.

House building should pick up from a low base, reflecting good net migration, low interest rates and a rebound in house prices.

The improving world economy should start to help exports as 2011 approached, BNZ said. The economy was clawing its way to better times and had come through the global financial crisis with relatively little damage. There was little sign of inflation pressure, so the Reserve Bank could sit on its hands for the foreseeable future, starting to lift rates in June, BNZ said.

Economic activity remained almost 3 per cent down on the peak two years ago, with the manufacturing and construction sectors still falling, and business investment also down sharply. But business confidence surveys suggest a recovery in both manufacturing and investment is likely next year.

The bright spot was the fishing, forestry and mining sector, which was up more than 9 per sent in the September quarter.

Mining alone was up more than 11 per cent because of the strong oil exploration and drilling programme this year worth about $200 million over summer and the Maari oil field hitting peak production in the September quarter.

The $1 billion Maari project has produced more than 5 million barrels of oil since it started early this year, with steady production of about 35,000 barrels a day.

Forestry and logging was up almost 4 per cent, while fishing was up 12 per cent.

The economic growth figures also show household spending is picking up slowly, especially on big-ticket items like furniture, appliances and cars, which were hammered during the recession. Manufacturing remains in the pits, contracting about 12 per cent in the past year.

Construction was down 10 per cent with a 24 per cent dive in house building.

- © Fairfax NZ News