The Reserve Bank's actions in tightening monetary policy at the worst possible time had damaged the country's growth prospects, Myles Wealth Management principal Craig Myles said yesterday.
Statistics New Zealand figures showed that economic growth for the three months ended June were substantially weaker than expected with just 0.2% of GDP growth compared to market expectations of 0.8% and the Reserve Bank's forecast of 0.9%.
Mr Myles had previously criticised the central bank for lifting interest rates when businesses were struggling to recover from the recession.
The figures yesterday confirmed his fears, he said.
"Where was the justification for tightening? These figures show there was no justification. The problem is that the bank did the most damaging thing at the worst possible time. Things got much tougher when the bank started making hawkish statements about tightening."
Mr Myles said the Reserve Bank was off course going into the recession and had now proved it was out of touch as the country started to find its feet.
"This is an example of going through all the analysis and coming up with the wrong answer if you are not grounded enough with what is happening to the lives of ordinary people affected by these events."Mr Myles said.
ASB economist Jane Turner said that at first glance it appeared the quarterly result had been dragged down by a bad result in a few sectors, rather than it being symptomatic of an underlying weakness in economic activity.
The Northland drought had had a greater than expected impact on agricultural production. That had fed through to extremely weak manufacturing activity.
Also, communications activity fell sharply for the third consecutive quarter due to lower volumes for telecommunication and postal services, she said.
"Weaker phone activity was also evident on consumer spending on the expenditure side suggesting that this is one area consumers are cutting back on as household finances remain tight."
The Reserve Bank was now likely to hold its OCR rates at current levels for much longer.
"So much for the Canterbury earthquake overshadowing the second quarter GDP release. The extent of the surprise is enough to rock the Reserve Bank, even after its recent flip from optimism to mild pessimism on the economic growth outlook," Ms Turner said.
