Economic data due out on Thursday, on trading during the last quarter of 2012, is expected to show a 1% increase in activity but will be overshadowed by the effects of the country-wide drought, which is set to skew all previous predictions.
The drought is being picked to offset economic gains expected from the billions of dollars being spent on Christchurch rebuilding work, subsequently dampening the country's economic growth during 2013.
Individual northern dairy farms are predicting 20% production downturns, costing them $500,000 to almost $1 million of income. In less than a week, estimates of losses from the drought have risen from $1 billion to more than $2 billion, including from Minister of Finance Bill English, as the northern dairy industry dries off herds two to three months early and beef and sheep farmers are forced to sell underweight stock early.
ASB economist Christina Leung said the gross domestic product (GDP) data due out from Statistics New Zealand on Thursday would indicate a rise in economic activity of 1%, which followed ''surprisingly weak growth'' during the previous quarter.
''We expect the [December quarter] recovery in activity to be broad-based across a range of sectors, with continued earthquake rebuilding remaining a key feature of the stronger economic activity,'' she said in a statement.
However, while dairy production held up during the fourth quarter, the drought is expected to have a negative effect during 2013 and can be expected to offset some of the boost from rebuilding in Christchurch, with the recovery more gradual as a result.
''More recently, drought concerns have intensified, with the entire North Island now declared to be in drought. We expect this will have a negative impact on GDP over 2013,'' Ms Leung said.
The New Zealand economic recovery during the coming year was likely to be more gradual as a result, she said.
A separate report for this year's first quarter, the Westpac McDermott Miller Consumer Confidence Index, said consumer confidence had fallen 0.3%.
Senior economist Felix Delbruck said consumer confidence had ''continued to cruise along at mid-altitude''.
''If anything we had expected a greater hit to confidence from the intensifying North Island drought and media reports of ongoing job losses,'' he said.
That had not happened, which was a reminder of other positive forces in the economy, including the rebuilding of Christchurch, low interest rates and upward housing trend, he said.
Ms Leung said aside from positive construction data during the fourth quarter, dairying and the retail sector also drove stronger GDP for that period, the latter reflecting improved household conditions, with consumer confidence underpinned by improved house market activity.
Ms Leung noted the Reserve Bank last week forecast fourth-quarter GDP growth to come in at 0.8%, but the central bank was yet to fully factor in the effects of the drought.
