By Mantik Kusjanto
WELLINGTON, Dec 23 (Reuters) - New Zealand's economy maintained a slow recovery in the third quarter from its longest recession on record, backing market views the central bank will keep interest rates unchanged until the second quarter of 2010.
Gross domestic product rose a seasonally adjusted 0.2 percent in the three months to Sept. 30, compared with upwardly revised 0.2 percent growth in the previous three months, which ended five quarters of contraction.
Economists polled by Reuters had forecast a 0.3 percent rise, while the Reserve Bank of New Zealand had predicted a 0.4 percent gain.
'The Reserve Bank will see this as confirming its view that it will remain on hold until the middle of next year,' said ASB Bank chief economist Nick Tuffley.
The New Zealand dollar fell around a third of a cent to a three-month low around $0.6970/75 before settling back around $0.6990/70. The implied yields on bank bill contracts were a tick lower along the curve, as traders slightly trimmed their rate expectations on the weaker-than-expected data.
The central bank has been at pains to douse expectations of an early start to the tightening cycle as growth and inflation pressures gather pace.
In its Dec. 10 monetary statement, the bank signalled tightening may start around mid 2010, while wholesale rates were forecast to rise possibly as soon as April.
The central bank slashed its cash rate by 5.75 percentage points between July 2008 and April this year to 2.5 percent and has kept rates there since then.
Markets have priced in around 60 percent chance of a quarter-point rate rise in March, down from a peak of 90 percent on Dec. 15, but have fully priced in a hike in April.
RATE RISE IN SECOND QUARTER
A Reuters poll, conducted before the GDP release, showed a majority of 17 economists expect the next move to be a hike in the second quarter of 2010 and a sharp tightening to 4.25 percent by year end.
'We see June 2010 as still the central case for when the tightening cycle starts. There is simply not sufficient data to warrant hiking as early as March,' said ANZ-National senior economist Khoon Goh.
A Credit Suisse measure shows the market is now pricing in around 203 basis points of tightening for the next 12 months, down from 226 early last week.
For a related graphic on GDP, double click: http://graphics.thomsonreuters.com/129/NZ_GDP1209.gif
The recovery is expected to pick up pace in the fourth quarter, with data already pointing to improved retail sales, house sales and prices, although staying within the Reserve Bank of New Zealand's forecasts.
'The economy will have strengthened a bit more in Q4 to 0.6 percent, and maybe something around 1 percent for the beginning of next year,' said Deutsche Bank chief economist Darren Gibbs.
'That's not a million miles different to what the Reserve Bank expected, so there's few implications for them.'
The RBNZ has forecast 0.6 percent growth in the fourth quarter and 0.8 percent in the first quarter of 2010.
Growth in the September quarter was driven by gains in domestic consumption and primary industries, including fishing, forestry and mining.
Domestic consumption, which makes up around 60 percent of the economy, increased 0.8 percent, though weakness remained in construction and house building and in exports.
Finance Minister Bill English said the data reflected an improved and more stable world economy, but more work was needed to secure growth.
'However the recovery remains fragile and any further problems abroad could weaken our growth prospects,' English said in a statement.
Unemployment hit a nine-year high of 6.5 percent in the third quarter and is expected to rise as high as 7 percent next year.
New Zealand also reported this week migration gains hit a five-year high. Migration is a driver for housing and demand.
(Additional reporting by Gyles Beckford, Adrian Bathgate in WELLINGTON and Catherine Trevethan in SINGAPORE; Editing by Jan Dahinten)
((mantik.kusjanto@thomsonreuters.com; +64 4 471 4232; Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net)) Keywords: NEWZEALAND ECONOMY/GDP (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WELLINGTON, Dec 23 (Reuters) - New Zealand's economy maintained a slow recovery in the third quarter from its longest recession on record, backing market views the central bank will keep interest rates unchanged until the second quarter of 2010.
Gross domestic product rose a seasonally adjusted 0.2 percent in the three months to Sept. 30, compared with upwardly revised 0.2 percent growth in the previous three months, which ended five quarters of contraction.
Economists polled by Reuters had forecast a 0.3 percent rise, while the Reserve Bank of New Zealand had predicted a 0.4 percent gain.
'The Reserve Bank will see this as confirming its view that it will remain on hold until the middle of next year,' said ASB Bank chief economist Nick Tuffley.
The New Zealand dollar fell around a third of a cent to a three-month low around $0.6970/75 before settling back around $0.6990/70. The implied yields on bank bill contracts were a tick lower along the curve, as traders slightly trimmed their rate expectations on the weaker-than-expected data.
The central bank has been at pains to douse expectations of an early start to the tightening cycle as growth and inflation pressures gather pace.
In its Dec. 10 monetary statement, the bank signalled tightening may start around mid 2010, while wholesale rates were forecast to rise possibly as soon as April.
The central bank slashed its cash rate by 5.75 percentage points between July 2008 and April this year to 2.5 percent and has kept rates there since then.
Markets have priced in around 60 percent chance of a quarter-point rate rise in March, down from a peak of 90 percent on Dec. 15, but have fully priced in a hike in April.
RATE RISE IN SECOND QUARTER
A Reuters poll, conducted before the GDP release, showed a majority of 17 economists expect the next move to be a hike in the second quarter of 2010 and a sharp tightening to 4.25 percent by year end.
'We see June 2010 as still the central case for when the tightening cycle starts. There is simply not sufficient data to warrant hiking as early as March,' said ANZ-National senior economist Khoon Goh.
A Credit Suisse measure shows the market is now pricing in around 203 basis points of tightening for the next 12 months, down from 226 early last week.
For a related graphic on GDP, double click: http://graphics.thomsonreuters.com/129/NZ_GDP1209.gif
The recovery is expected to pick up pace in the fourth quarter, with data already pointing to improved retail sales, house sales and prices, although staying within the Reserve Bank of New Zealand's forecasts.
'The economy will have strengthened a bit more in Q4 to 0.6 percent, and maybe something around 1 percent for the beginning of next year,' said Deutsche Bank chief economist Darren Gibbs.
'That's not a million miles different to what the Reserve Bank expected, so there's few implications for them.'
The RBNZ has forecast 0.6 percent growth in the fourth quarter and 0.8 percent in the first quarter of 2010.
Growth in the September quarter was driven by gains in domestic consumption and primary industries, including fishing, forestry and mining.
Domestic consumption, which makes up around 60 percent of the economy, increased 0.8 percent, though weakness remained in construction and house building and in exports.
Finance Minister Bill English said the data reflected an improved and more stable world economy, but more work was needed to secure growth.
'However the recovery remains fragile and any further problems abroad could weaken our growth prospects,' English said in a statement.
Unemployment hit a nine-year high of 6.5 percent in the third quarter and is expected to rise as high as 7 percent next year.
New Zealand also reported this week migration gains hit a five-year high. Migration is a driver for housing and demand.
(Additional reporting by Gyles Beckford, Adrian Bathgate in WELLINGTON and Catherine Trevethan in SINGAPORE; Editing by Jan Dahinten)
((mantik.kusjanto@thomsonreuters.com; +64 4 471 4232; Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net)) Keywords: NEWZEALAND ECONOMY/GDP (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.