Photo: RNZ
- Primary production, manufacturing, transport, business services sectors strongest
- Arts/recreation major drag along with telecommunications/media
- Data over the past month has shown activity slowing markedly
- Forecasts for a slow pick up this year with much uncertainty about global outlook
The economy had a solid start to the year on the back of improved manufacturing, and business related services, but has since shown signs of losing that momentum.
Stats NZ data shows gross domestic product (GDP) - the broad measure of economic growth - rose 0.8 percent in the three months ended March, to be 1.1 percent lower than a year ago.
Expectations had been for quarterly growth of 0.7 percent, although growth for the previous quarter was revised down to 0.5 percent from the original 0.7 percent.
The economy emerged from a short sharp recession in the December quarter.
Spring in economic step
The strong growth spots were agriculture, up 0.8 percent on higher dairy production, manufacturing 2.4 percent on machinery and equipment, business services driven by computing systems and design, and health services.
There were smaller positive contributions from construction and transport/wholesaling industries.
Those were partly offset by a 1.9 percent fall in arts and recreation on lower gambling activity, and decreases in telecommunications and internet services.
Individual shares of the economy - per capita GDP - rose 0.5 percent, but were still 1.8 percent lower over the year.
The country's purchasing power (disposable income) improved 0.5 percent for the quarter, although it was still marginally weaker than a year ago.
Slow recovery
However, the latest GDP reading has already been overtaken by more recent data with the monthly surveys of the manufacturing and services showing a marked fall in activity.
Retail sales have also been tepid, the housing market moving sideways, and construction stumbling, while inflation pressures driven by food prices have notched higher.
Economists have said uncertainty about US trade policies and geopolitical conflicts in the Middle East have made consumers and business more cautious, while the benefits of falling interest rates are yet to be felt by many households.
Forecasts are for a modest pick up in growth later in the year to around 1 percent, rising through 2 percent next year.
New Zealand's quarterly growth rate was the strongest among our major trading partners, except China.
'Great news' - Finance Minister
Finance Minister Nicola Willis labelled the stronger than expected growth as "great news" which confirmed the country was getting back on track.
"This is the second consecutive quarter in which growth outstripped forecasters' assumptions and confirms the economy was gaining momentum late last year and at the start of this year," she said.
"I know many households and businesses are still doing it tough, but the steps the Government has taken to stop wasteful spending, grow the economy and provide more support to households are paying dividends."
However, Council of Trade Unions economist Craig Renney said the data showed how deep a hole the economy has been for the past couple of years and the toll it had taken on households.
"The data shows that workers incomes aren't keeping up with profits... Compensation of employees rose 1.5 percent this quarter before inflation. Gross operating surplus and gross mixed incomes - a broad measure of profit - rose 2 percent."
"The growth in GDP this quarter is welcome but the economy is still smaller than at the election in real terms. With more recent data suggesting that the economy is struggling to grow, there is a real danger that we return to slow, no, or negative growth."
Reserve Bank to the sidelines
Economists agreed the data would likely support a cautious Reserve Bank staying on the sidelines at 3.25 percent in its next review of interest rates on 9 July.
"With the economy regaining its footing sooner than expected after last year's sharp downturn, we continue to expect that the RBNZ will take the opportunity to pause and assess the situation at its July OCR review," Westpac senior economist Michael Gordon said.
ASB economist Wesley Tanuvasa said there was a bit more fuel in the country's economic tank, although many households were still treading water, and there were also risks to complicate the RBNZ's policy thinking.
"Tariffs still present downside risks to the growth outlook. However, tensions in the Middle East present upside risks to the inflation outlook."
ANZ economists expect the OCR to be held in July but end up in stimulatory territory at 2.5 percent as the economic recovery disappoints, but with the likelihood that further cuts will happen more slowly.
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