March 14, 2018 / 11:07 PM / a year ago

UPDATE 2-New Zealand posts weaker-than-expected 0.6 pct GDP growth in Q4; 2.9 pct annual growth

    * NZ posts Q4 GDP growth of 0.6 pct
    * Lower dairy production weighs on growth
    * Consumer spending and business investment pick up

 (Adds analyst comments)
    By Charlotte Greenfield and Marius Zaharia
    WELLINGTON, March 15 (Reuters) - New Zealand's economy grew
by a weaker-than-expected 0.6 percent in the fourth quarter of
last year as hot weather hampered dairy production, sending the
local currency lower on Thursday and cementing expectations the
central bank will hold interest rates for a prolonged period.
    Consumers and businesses looked to have largely gotten over
the political jitters which had weighed on growth earlier last
year ahead of the September 2017 election, but analysts said
more clarity was needed on the impact of the planned policies of
the new centre-left Labour government for consumption to pick up
more significantly.
    Looming government measures to take the heat off the housing
market, including more stringent tax rules and a ban on foreign
buyers, are expected to weigh on growth into 2018.
    "We expect growth to remain at a more subdued pace this
year, as the new government's policies – particularly around
cooling the housing market – are expected to be a drag on
activity on balance, at least initially," said Michael Gordon,
senior economist at Westpac.      
    The economy's annual growth rate was 2.9 percent, below the
3.1 percent expected by analysts, who had on average forecast
0.7 percent quarterly growth. 
    The data weakened the New Zealand dollar          to $0.7303
from around $0.7330.
    The tepid result was largely due to weakness in production
of dairy products, the country's top goods export, which saw
agricultural production fall 2.7 percent.
    "Hot, dry weather appeared to have a negative impact this
quarter on agriculture production....Falling milk production was
reflected in lower dairy manufacturing and dairy exports," said
Statistics New Zealand national accounts senior manager Gary
Dunnet in an emailed statement.
    The result also fell slightly short of Reserve Bank of New
Zealand forecasts of 0.7 percent, which could give the bank even
more impetus to keep interest rates on hold at a record low of
1.75 percent when it releases its policy decision on March 22.
    The bank has signaled it would keep rates on hold, possibly
for years, until it was confident inflation had recovered after
spending years below the target band.
    Nevertheless, the economy experienced buoyant retail
spending and strong business investment.
    Household spending grew 1.3 percent in the fourth quarter as
consumers splashed out on groceries and eating out, while fixed
asset investments such as factory and IT equipment rose 2.1
percent, Statistics New Zealand said.
    "Stepping back, while today’s figures are perhaps a touch
disappointing, they still paint a picture of an economy
recording a respectable pace of growth," said Phil Borkin,
senior macro strategist at ANZ.
    "And looking forward, it is a pace of growth we more-or-less
expect to continue," he said, adding there were "few
implications for monetary policy." 

 (Reporting by Charlotte Greenfield and Marius Zaharia; editing
by Clive McKeef)
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