WELLINGTON: New Zealand's economy grew more than expected in the third quarter, driven by production gains in agriculture and mining, but the pace of annual growth was subdued, keeping pressure off the central bank from raising interest rates until well into 2015.
The economy grew a seasonally adjusted 1.0 percent in the three months to Sept. 30, stronger than economist forecasts for a quarterly rise of 0.7 percent due to a strong boost from dairy production and oil and gas extraction.
The annual rate eased to 2.9 percent, short of expectations for 3.1 percent but still posting its fastest annual expansion since the March 2008 quarter.
Following historical revisions due to calculation changes, annual and year-to-date growth rates were little changed from downwardly revised figures from the previous quarter.
Annual growth was softer as expansion in agriculture and manufacturing eased from the same quarter a year ago, indicating that blistering growth momentum seen in the past year may be starting to peter out. While the South Pacific island nation's agriculture-driven economy will likely continue to outperform developed countries in the coming months, falling global commodity prices are starting to apply the brakes on a year-long run of strong expansion.
Activity in primary industries was the main driver of growth in the quarter, rising 5.8 percent on the back of increased dairy production and mining, but that was offset by a 4.0 percent fall in forestry.
Cooling growth in China, New Zealand's major trading partner, and more subdued expansion in the country's construction industry back the Reserve Bank of New Zealand keeping its cash rate on hold at 3.5 percent after lifting rates by a total of 100 basis points this year.
"At this stage, we don't think it will change the RBNZ outlook of the strength of the economy.
We don't expect it to lift rates until late next year," said ASB Bank chief economist Nick Tuffley. The New Zealand dollar was unchanged by the data, sitting around $0.7700, while interest rate futures were a touch weaker.
CONSTRUCTION SLIPS
Growth was broad based, with manufacturing and services industries rising, although construction activity, which has been a strong driver of expansion, was down 1.2 percent due to lower heavy and civil engineering building.
This suggests that economic momentum remains, but at a slower pace compared with the past year, when the economy posted three consecutive quarters of expansion of 1 percent or more between September 2013 and March.
Most economists expect the RBNZ will hold rates until late 2015 or early 2016 while it monitors the impact of a solid economy on inflation, which has cooled to an annual rate of 1 percent, well below the bank's 2 percent target.
A glut of global dairy supply has knocked prices 50 percent lower this year, which is expected to crimp economic growth as farmers face a NZ$6 billion income cut by producing less milk.
On the upside, construction demand remains solid, supported by a strong housing market and earthquake reconstruction projects in the Canterbury region.
Domestic demand is also seen picking up, driven by strong immigration.
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