Tourism boom spurs GDP growth in New Zealand

WELLINGTON: New Zealand’s economy grew slightly faster than expected in the third quarter, thanks in part to a tourism boom, adding to a growing conviction that the central bank will stay sidelined for much of next year as it gauges the impact of its rate cuts.

Gross domestic product rose a seasonally adjusted 0.9% in the third quarter, above economists’ forecast of a gain of 0.8%. Growth was 2.3% on the year, in line with market expectations.

The services industries were fuelled by greater domestic demand and spending by international visitors, said Statistics New Zealand.

Many economists say the improved growth rate provides the Reserve Bank of New Zealand some breathing space and further reduces the already-low chance of another cut in interest rates.

First NZ Capital economist Chris Green said the slightly stronger tone to the GDP data was likely to increase the RBNZ’s comfort in keeping interest rates unchanged at 2.5% over the whole of 2016. “However, the possibility of another rate cut cannot be ruled out given the low inflation.’’

Last week the central bank cut its benchmark interest rate to match a record low of 2.50% and virtually shut the door on further easing, saying it expected to achieve its inflation target without more monetary stimulus.

New Zealand’s economy slowed in the first half largely due to falling dairy prices and a slowdown in China, one of its main trading partners, which prompted the RBNZ to cut rates by 100 basis points between June and December.

Third-quarter growth was led by manufacturing, which grew 2.8% in the quarter. Higher visitor numbers also boosted tourism exports and retail, trade and accommodation services. Growth in the overall services sector, which makes up 70% of the economy, rose 0.9%.

Softer construction growth took some of the shine off GDP, falling 2.9% in the quarter.

The New Zealand dollar rose about a quarter of a US cent to flirt with 68 US cents in reaction to the data. It has since eased back to $0.6762 against a volatile greenback which firmed modestly after the Federal Reserve delivered a well telegraphed hike in US interest rates.

“The economy is on a stronger growth trajectory and we have some optimism looking into 2016,” said ANZ senior economist Mark Smith. “Still, while the data is consistent with a period of stability in interest rates the very low inflation backdrop means more rate cuts are still possible.’’