Photo: 123RF
New Zealand's economy has rebounded out of recession a little more quickly than expected, growing 0.7 percent in the three months to the end of December.
It appears to mark the end of a recession engineered by the Reserve Bank as it tried to stamp out inflation.
But will the uptick interfere with the expected further lowering of the official cash rate through this year?
Gareth Kiernan, chief forecaster at Infometrics, said it was unlikely.
"The December quarter result was essentially underpinned by a strong tourism sector - meaning that the more positive spending figures we had been getting through are not really coming from NZ households yet, a rebound in government consumption - which is unlikely to continue given fiscal constraints, a bounce back in electricity after the previous quarter's crisis, and an improvement in business investment in anticipation of better demand conditions coming."
Infometrics chief forecaster Gareth Kiernan Photo: RNZ / Rebekah Parsons-King
He said the most important aspect was that consumption spending only lifted 0.1 percent from the previous quarter "so it's not like households are rushing back out to the shops yet".
"Obviously interest rate cuts to date have yet to take their full effect, but there doesn't seem to be much risk of the Reserve Bank overstimulating the economy yet by continuing to cut."
Sabrina Delgado, economist at Kiwibank, agreed the update was unlikely to change the future track of the cash rate.
"We continue to expect the Reserve Bank to deliver two 25bps cut over their next two meetings. Followed by at least one more 25bps cut to 3 percent in the third quarter of this year.
"It's great to see some green shoots emerging, but we must bear in mind that any growth right now is coming off a very low base. And it's still early days. There are still plenty of downside risks from a potential global slowdown to a still deteriorating labour market that could easily disrupt momentum."
She said the Reserve Bank had moved away from a focus on GDP to determine how its strategy was working to instead monitor higher frequency data.
"This comes off the back of the volatility in GDP numbers in recent releases with the data going through extensive revisions. As a result, today's GDP numbers have inherently been taken by market participants to carry less weight in shaping the RBNZ's perspective."
But at Westpac, chief economist Kelly Eckhold said the "upside surprise" in the numbers was genuine and likely to mean that the Reserve Bank saw less spare capacity in the economy than before.
"But the overall impact on their view is likely to be muted given they have signalled that they are putting less weight on the GDP data given recent volatility in the statistics.
"I think that this data won't likely impact the 25bp cut signalled in April but may impact the likelihood of a third 25bp cut to 3 percent in the second half of the year.
"The outcome of the US administration's tariff review later this month and the associated global growth implications will probably have a higher weight in their thinking."
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