The September quarter national accounts, to be released on Thursday, are expected to show the New Zealand economy sailing smoothly into summer.
Westpac economist Sarah Drought is forecasting growth of 0.8% in the three months ending September. Following an impressive run rate of 0.9% for the previous three quarters, a 0.8% quarterly growth rate would mean annual growth of 3.6%.
"Indicators over the past few months have painted a positive picture for economic growth. Business surveys showed firms became decidedly more positive in the September quarter about the general business environment and prospects for their own business."
The optimism was backed up by strong growth in employment and the unemployment rate falling below 5% for the first time since 2008, she said.
The sector level data trickling in recently had not spoiled the party but suggested as the growth from construction was moderating, other sectors had strengthened to fill the gap.
Solid growth was not surprising in light of familiar factors such as the burgeoning population, surging tourist numbers and low interest rates continuing to boost demand.
Quarterly growth of 0.8% would only be slightly below the Reserve Bank’s forecast from the November Monetary Policy statement and it would not materially affect its outlook for the economy, Ms Drought said.
The Reserve Bank was counting on strong growth heading into 2017 in order to push inflation higher. For now, momentum in growth looked solid, especially given the improved prospect for dairy sector incomes, she said.
The price of whole milk powder, New Zealand’s key commodity export, is likely to be little changed on the GlobalDairyTrade platform tomorrow night as more product is offered at auction.
Whole milk powder futures for December last traded at $US3580 ($NZ5084) a tonne on the NZX, implying prices will edge up 0.3% at tomorrow night’s auction, according to AgriHQ senior dairy analyst Susan Kilsby.
ASB senior economist Jane Turner is also forecasting quarterly economic growth of 0.8% but is picking an annual growth rate of 3.5%.
Continued strong performances in retail spending and construction activity remained the backbone of New Zealand’s economic growth. However, contributions from those sectors might be smaller than recorded during the first half of the year.
"We believe the services sector is likely to be the star performer in the third quarter."
ASB expected dairy production to be a small drag on growth for the September and December quarters. Poor grass-growing conditions and low dairy prices had resulted in a sharp fall in New Zealand dairy production, she said.
"We expect growth over the next year to remain above trend. Tourism, strong population growth and low interest rates will remain key drivers for stronger economic growth. Dairy regions will become less of a drag with expectations of improved cash flows."
Balance of payments data would also be released by Statistics New Zealand this week and Westpac expected the annual current account deficit to remain steady at 2.9% of GDP, with a worsening in the goods trade deficit expected to be offset by a narrowing in the investment income deficit.
Ms Drought said a 10% fall in the terms of trade since mid-2014, driven by a plunge in global dairy prices, had been a key factor contributing to a deterioration in the goods balance.
