WELLINGTON – New Zealand’s economy grew at a much faster pace than expected in the second quarter, officials said on Thursday, reinforcing the idea that the central bank would start raising interest rates despite the recent COVID-19 outbreak.
Gross domestic product (GDP) grew by 2.8 percent in the three months through June, Statistics New Zealand said, well ahead of a Reuters poll forecast of 1.3 percent growth and the Reserve Bank of New Zealand’s (RBNZ) estimate of 0.7 percent.
The growth rate is above the central bank’s 1-3 per cent target range after a fall in unemployment in the second quarter to an 18-month low of 4.0 per cent and annual inflation to 3.3 per cent.
The New Zealand dollar jumped 0.3 percent to $0.7320 after the data was released.
“We expect the RBNZ to ‘see’ near-term volatility and reduce monetary stimulus with a series of 25 basis point (rate) hikes starting next month,” said Mark Smith, senior economist at ASB Bank.
The central bank delayed a rate hike last month after Auckland put the country into a snap COVID-19 lockdown over the outbreak of the delta version of COVID-19, but said a hike was still on the cards.
The market has already priced a 100 per cent probability of a hike of 25 basis points at the central bank’s next meeting on October 6.
Annual GDP jumped 17.4 per cent from a very weak base as the country was under complete COVID-19 lockdown in the second quarter last year. A Reuters poll had expected a 16.3 percent increase.
The second quarter’s growth was driven by the tourism sector, when the country opened a trans-Tasman travel bubble with Australia.
New Zealand has made a strong comeback from a recession last year, largely due to its success in eliminating COVID-19 within its borders and reopening its domestic economy in the face of other advanced nations.
The country had been virus-free for months until the outbreak of the highly contagious Delta strain in August. Auckland, the largest city, remains in lockdown, but the rest of the country has reopened. However, the travel bubble with Australia has been suspended.
Economists expect growth to contract in the third quarter due to the delta-driven lockdown, but forecast a rapid recovery as vaccinations increase, and the outbreak is contained.
“Given that the economy was running hot in lockdown in August, another V-shaped rebound becomes more likely,” said Michael Gordon, acting chief economist at Westpac Bank.
The country recorded 13 new cases of COVID-19 on Thursday, taking the total number of cases in the latest outbreak to 979.
by Praveen Menon
This News Originally From – The Epoch Times