Central Banks

Tourists boost NZ 4th-quarter GDP, annual growth at 7-year high

The 'sweet spot' that New Zealand is aiming for
The 'sweet spot' that New Zealand is aiming for

A boost in tourist spending lifted economic growth in New Zealand during the fourth quarter, a sign that a buoyant economy with limited inflation pressures will keep pressure off the central bank to move on interest rates.

The economy grew a seasonally adjusted 0.8 percent in the quarter, according to Statistics New Zealand, a touch more than economists' forecast of 0.7 percent, as the retail trade and accommodation sector received a strong boost from overseas visitors.

The annual growth rate rose to 3.5 percent, the highest since the September 2007 quarter. Economists had expected 3.3 percent.

The data was in line with the Reserve Bank of New Zealand's (RBNZ) forecast and consistent with the growth trend seen by many economists.

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Housing services activity rose 1.2 percent, benefiting from the country's booming real estate market, while financial and insurance services grew 1.1 percent on the back of increased banking activity.

Manufacturing activity rose 1.0 percent, boosted by petroleum, chemical and agricultural product processing.

The annual reading shows that New Zealand is outperforming many developed countries including Australia, Europe and Japan, which have been loosening monetary policy to shore up their economies.

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It suggests RBNZ will hold its official cash rate at 3.5 percent into 2016 as the economy remains in a sweet spot of buoyant growth and low inflation for now.

"For now, we think the RBNZ's inclination is to sit there on hold and allow the economy to recover and for that to gradually push up inflation," said Ben Jarman of JPMorgan.

Last week, the RBNZ kept rates unchanged following a series of monetary tightening last year, as it watches data, commodity prices, inflation and a still-elevated exchange rate.

The central bank expects the economy to grow 3.2 percent in the year to March 2015 and 3.5 percent in 2016, before slowing to about 3 percent the two following years.

Many economists say sustained growth will lift CPI from an annual 0.8 percent towards the mid-point of the RBNZ's 1 percent to 3 percent target range and prompt a rate increase in the first half of 2016.

The economy still faces risks in coming months because of slowing growth in China and Australia, its biggest trading partners.

In addition, many economists expect a drop in agriculture production to reduce growth slightly in the first half of the year as drought weighs on the dairy and meat industries, the country's largest export earners.