GDP above Reserve Bank's expectations

Fourth quarter GDP for 2009 was above the Reserve Bank's expectations at 0.8% and Westpac says this will help to provide the evidence it is looking for that the recovery is robust.

Thursday, March 25th 2010, 1:35PM

by Jenha White

Westpac Weekly Commentary said earlier in the week that a strong number would leave the Reserve Bank on track to begin raising rates in June as implied in the last Monetary Policy Statement.

The GDP report which was released this morning showed the New Zealand economy expanded 0.8% quarter on quarter with private consumption up strongly, government spending firm, investment weak, and net exports down.

BNZ Markets Outlook says GDP is the first litmus test of how the economy is tracking relative to the latest Reserve Bank forecasts and is thus a factor in determining when interest rates are likely to start rising.

J.P.Morgan Weekly Prospects was in line with the Reserve Bank expecting a 0.6% rise, ASB Business Weekly was expecting a 0.5% rise, Westpac Weekly Commentary was expecting 0.7%, the market and BNZ Markets Outlook was spot on expecting 0.8% and ANZ National was expecting 0.9%.

ANZ Market Focus also said earlier in the week that the debate around the timing of the Reserve Bank's first Official Cash Rate (OCR) hike has become strategic rather than economic.

"We wonder what economic imperative there is to raise rates just yet given tighter financial conditions and what is set to be a tight Budget.

"However, the Reserve Bank may decide to hike for strategic reasons. We suspect it remains mindful of previous cycles when it's been caught behind the curve."

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