Economy on the right track, English says

Economic growth of 3.1 per cent in the year to December 31 shows that the government’s programs are working, New Zealand Finance Minister Bill English says.

 
 

Statistics released on Thursday show that gross domestic product (GDP) rose 0.9 per cent in the December quarter.

GDP was 3.1 per cent higher in the December quarter 2013 than the same quarter in 2012, with annual average growth of 2.7 per cent.

“Business and consumer confidence remains high, manufacturing activity has been expanding for almost a year-and-a-half and the current account deficit is less than half of what it was five years ago,” Mr English said.

“Businesses are investing for the long term to support productivity and higher wages.”

Mr English said New Zealand’s 0.9 per cent quarterly GDP growth was strong by the standards of other developed countries.

It compares with 0.6 per cent in the United States, 0.7 per cent in the United Kingdom and Canada, 0.8 per cent in Australia and 0.2 per cent in Japan.

With an eye on the September 20 election, Mr English said “untried experiments” such as changing the Reserve Bank or reverting to big-spending policies would put all the gains at risk.

Reserve Bank governor Graeme Wheeler said the pace of economic growth was creating inflationary pressures that required a monetary policy response.

He kicked off a tightening cycle this month, lifting the official cash rate (OCR) a quarter-point to 2.75 per cent and said he anticipates raising the OCR another two percentage points over the next two years.

Westpac NZ chief economist Dominick Stephens and senior economist Michael Gordon said the central bank would have to gradually raise rates this year as the economy gathers momentum on the strength of the Canterbury rebuild, house building activity in Auckland and 40-year high terms of trade.

“As interest rates rise, we suspect that the housing market will slow, consumer buoyancy will gradually diminish, and eventually, GDP growth will slow. But this is a process that could take years,” they said in a note.

 
 

 
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