WELLINGTON: The New Zealand economy is expected to have slowed to its weakest pace in a year in the second quarter, hurt by softening commodity prices and reduced building activity, easing pressure on the central bank to raise rates any time soon.
However, with the economy still seen growing at a solid pace, analysts don't expect the data to have a bearing on Saturday's general elections, in which the ruling centre-right National government has a strong lead.
The agricultural-based economy is expected to have grown 0.6 percent in the three months to June 30, according to the median in a Reuters poll, the slowest pace since the second quarter of last year.
The Reserve Bank of New Zealand (RBNZ) last week forecast 0.8 percent growth in its quarterly monetary policy statement, as it signalled it will be holding rates steady well into next year.
The expected slowdown comes after three consecutive quarters of growth of 1 percent and more, which were driven by rocketing dairy prices and commodity exports, and a surge in the construction sector.
The annual rate is seen holding at the six-and-a-half year high of 3.8 percent posted in the first quarter.
Many economists see this as the peak of New Zealand's growth in the current cycle as sliding commodity prices weigh, although solid domestic activity is expected to keep the economy humming along at a decent pace.
"After a blazing start to the year, there's no question that the New Zealand economy has lost some of its momentum in recent months," said Westpac senior economist Michael Gordon.
"However the change in fortunes hasn't been dramatic - more like a slowing from above-trend growth to something closer to trend."
The data comes two days before the country's three-yearly election, with the governing National Party campaigning on its economic and fiscal management record.
Latest polls show it comfortably ahead in the polls, although it will likely need the support of minor parties to govern, and a close result and lack of a clear decision on election night may lead to some volatility in financial markets.
SLOWER GROWTH MEANS LOWER RATES
The central bank said in last week's monetary statement that it expects growth of 3.7 percent through 2014, but forecast a gradual slowdown, which along with soft inflation pressures justified its decision to sit on the sidelines for the time being.
"In order to better assess the moderating effects of the recent policy tightening and export price reductions, it is prudent to undertake a period of monitoring and assessment before considering further policy adjustment," RBNZ Governor Graeme Wheeler said.
The bank left its cash rate at 3.5 percent, but its forecasts imply the rate headed to 4.5 percent by the end of next year.
A Reuters poll points to the bank staying on hold until the first quarter of next year before it resumes a gradual tightening.
Besides easing building activity, a key factor in slowing growth is the near 50 percent fall in global dairy prices from their peak in February.
This has prompted Fonterra, the country's biggest company and exporter, to slash its forecast payout to suppliers by 28 percent from last year.
That would reduce national income by more than NZ$4 billion, and there are expectations that Fonterra may cut the forecast payout again at next week's annual result.
However, for all the signs of a slow down, solid domestic activity in services and consumer activity is expected to underpin a healthy pace of growth.
The run of recent data has been positive but more restrained. Modest rises in retail sales have been backed by consumer and business sentiment continuing to remain positive but off multi-year highs. More people are also in work, with terms of trade at 40-year highs and migration gains at 11-year peaks.
"These positive factors have put the economy on a solid footing," said ASB chief economist Nick Tuffley.
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