The economy rebounded at the end of last year as consumer spending picked up after Covid lockdowns were eased.
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Stats NZ data showed gross domestic product (GDP) rose a seasonally adjusted 3.0 percent in the three months ended December, slightly below expectations, and compared with a revised 3.6 percent fall in the previous quarter.
Growth was driven by improved activity in the retail, hospitality and construction sectors.
“Households spent more on goods and services, particularly on durable items such as clothing and footwear, and electrical appliances,” Stats NZ senior manager Ruvani Ratnayake said.
Service industries make up about two thirds of the economy, and showed 2.5 percent growth, but the household spending component rose 5.2 percent.
Goods producing industries such as manufacturing rose 6.5 percent, after slumping 7 percent in the previous three months when lockdowns were in force.
“There were notable rises in transport equipment, machinery, and equipment manufacturing; and metal product manufacturing, with higher exports of related products seen in the quarter,” Ratnayake said.
Construction rose 8.7 percent in the quarter, driven by construction services and heavy and civil engineering.
Agriculture was one of the few parts of the economy to slip during the quarter falling down 3.8 percent, mainly driven by falls in beef and dairy cattle farming.
GDP rose 3.1 percent on the same quarter a year ago, and on an annual average basis rose 5.6 percent.
Early indications for the start of this year suggest growth has been more sluggish, with consumer and business confidence falling in the face of inflation at 5.9 percent, the highest in more than 30 years, and the Reserve Bank has seen raising interest rates steadily through the year.
Finance Minister Grant Robertson called the economy resilient and credited government measures with helping it rebound.
“The New Zealand economy finished 2021 in good shape and on an annual basis is trending at levels above where it was before the pandemic. It shows our actions in response to the pandemic are working.
“It’s a strong starting point for 2022 as we face the challenges of Omicron, a global energy crisis and ongoing supply chain disruptions from the pandemic. These are causing significant stress to many households. They will also weigh on growth figures for the current quarter,” he said.
Economists said the data showed a solid economy, but it would face headwinds this year from a wide range of factors, and the scope of the task facing the RBNZ .
“A rather potent combo of high inflation and rising interest rates – to hopefully contain inflation – is set to erode household incomes from both ends,” ANZ senior economist Miles Workman said.
“To prevent a hard landing, a lot depends on the revival of international tourism and education, and the labour market holding it together.”
Kiwibank chief economist Jarrod Kerr said the December quarter rebound was “impressive”, but a more subdued outlook for growth meant the RBNZ should tread carefully.
“If the RBNZ moves too quickly with big bold 50 bps (half a percentage point) hikes, it risks pulling the handbrakes on growth, rather than just tapping the brake pedal.”
ASB chief economist Nick Tuffley said the numbers were slightly below its forecast.
“One of the bits that wasn’t quite rebounding as quickly as what we had anticipated was the retail sector,” Tuffley said.
“We had fairly a substantial flock back to the shops once people were able to but still not quite back to where we were in the middle parts of last year.”
ANZ senior economist Miles Workman said volatile GDP numbers due to Covid-19 meant the Reserve Bank may have to rely more heavily on labour market and Consumer Price Index data to set policy.
He said the central bank had some difficult work ahead and may have to sacrifice economic growth in its battle to control inflation.
Workman said the RBNZ had the tools up its sleeve.
“They are in a situation where if they don’t do enough, inflation is going to be stronger than otherwise and that’s going to hurt economic growth,” he said.
“If they do too much, then demand and inflation is going to fall but they can always unwind that.”
Workman said the central bank was in a situation where there would be damage to household balance sheets no matter what.
He said research suggested most households could tolerate interest rates of about 5.5 to 6 percent, but beyond that, some may find it difficult, particularly those that recently bought in a hot market with stretched debt serviceability.
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