Long-awaited upturn arrives at last

JAMES WEIR
Last updated 08:06 22/06/2012

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The economy took a great leap forward with the strongest growth in five years during the March quarter with the prospect of a better job market ahead, economists say.

Despite storming growth in the first part of the year, the Reserve Bank is still expected to keep rates on hold till March, rather than making an earlier move. A cut to official interest rates seems off the cards, unless there is an economic meltdown in Europe.

The economy raced up an unexpectedly strong 1.1 per cent in the first three months of the year, mainly as a result of a big boost in food manufacturing, riding on the back of a boomer grass-growing season.

The quarterly number, bigger than expected, was "the upturn we have long been waiting for", Westpac chief economist Dominick Stephens said. "There should be more jobs ahead, and in time, stronger wage growth".

But other economists said unemployment was unlikely to drop from 6.7 per cent now to below 6 per cent till the Canterbury rebuild picked up steam next year.

The New Zealand dollar immediately jumped about half a US cent back above US80c on the gross domestic product news yesterday, but dipped later ending the day at US79.7c.

The high dollar will be good for consumers, helping to hold down import prices and speed the fall of diving petrol prices, but will also make life harder for exporters and tourism operators.

Stephens said they had long expected that growth would be reasonably robust this year.

And stronger growth was usually followed by falling unemployment, presently sitting at 6.7 per cent.

Though large job cuts were announced by Corrections and Beaurepaires yesterday, there were thousands of people being hired for the Christchurch rebuild, he said. But as the economy grew and the Canterbury rebuild picked up steam, inflation would rise and the central bank would need to lift interest rates "substantially". The cash rate would rise gradually from 2.5 per cent to about 6 per cent by 2016 as demand boomed during the rebuild.

ANZ Bank senior economist Mark Smith said the March quarter showed the economy had a "pleasing" momentum at the start of the year, but it was partly a bounceback from recent lows.

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- Taranaki Daily News

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