GDP: Is New Zealand's economy actually on the mend? | Ryan Bridge TODAY

[00:00:00]Was New Zealand's economic recovery actually gathering momentum before the Iran conflict? According to the GDP figures released yesterday, it was with the economy growing 0.8% in the March quarter up 1.5% on a year ago.

[00:00:15]But the data has been described as the calm before the storm because it doesn't take into account the Iran war and of course the flow on effect to oil prices.

[00:00:24]Westpac chief economist Kelly Eckhold is with us now. Good morning to you.

[00:00:28]>> Morning.

[00:00:29]>> What can we read into the fact that we had 1.5% growth albeit let's deal with later the fact that you know the world was turned on its head after these numbers, but what can we read into those for the year to the end of March?

[00:00:43]>> Well, what it means is that the story we were telling right at the start of the year which which said that New Zealand was going to have a pretty decent year for growth. I mean back then I was forecasting over 3% growth for the year was probably on the money. You know, like there were a quite a few factors that were supporting the economy through the back half of last year and into the early this year, strong commodity prices, low interest rates, supportive exchange rate. These were all things that look like they were going to help the economy hit the straps and this data suggested indeed that is what was going on up until early March.

[00:01:16]>> Does that suggest that there's some strength to return to if we get the peace deal and the oil prices come down which they are already?

[00:01:25]Um are there some underlying things that we can kind of pick up where we left off?

[00:01:28]>> I think there's a good case for that because a lot of those positive factors I talked about are still there. Interest rates are still low.

[00:01:36]Um the commodity prices are still strong. I mean the field days for example last week was a very positive experience for everybody really.

[00:01:43]Um and you know, now that we've got this uncertainty that was associated with what was going on the Middle East apparently kind of reduced, I think you'll see that businesses and consumers will want to get back to business reasonably quickly as long as everything sticks.

[00:01:58]>> What Where does it leave the Reserve Bank though? Because obviously some hope of a resolution, but I've even seen Westpac in fact cutting interest rates.

[00:02:10]So where does it leave the Reserve Bank governor with regard to the OCR?

[00:02:15]>> Yeah, well the markets have looked at this and they've particularly looked at the lower inflation outlook now to say, "Hey, are we sure we're going to have quite as many interest rate rises this year than what would have perhaps been threatened in April and May?"

[00:02:28]Um probably the best comparison is think about where we were at the start of the year. The Reserve Bank was telling us that towards the end of this year we'd start getting rate rises. Now, it's probably reasonable to expect that we'll probably see more rate rises than that because the inflation outlook is still elevated compared to what they expected um at the start of the year. You know, probably inflation is going to be in the threes or perhaps the low fours, whereas they were expecting in the twos.

[00:02:56]Um but it doesn't really perhaps suggest that they'll be raising rates perhaps as soon as July, for example, and we may only get a couple of them this year.

[00:03:05]We'll just >> So So maybe they might pause for a little bit longer because the intimation from the last meeting is kind of like the next one will be it.

[00:03:13]>> Well, last time they said that they expect to raise the interest rate incoming meetings. Now, how do you define incoming meetings? I think that was carefully crafted to give themselves wiggle room here in case stuff like this happened. And certainly what has happened in the last week or so is a substantial downside surprise for oil prices, for energy prices, for inflation um relative to what they had in their last forecast, and I'm sure we're going to hear about that.

[00:03:39]>> Do you think all of that's going to cheer the consumer up? Because of course the latest consumer confidence data was pretty dire.

[00:03:45]>> Yeah, yeah. Well, our survey was out this week and it was pretty weak. Um you know, reflects what people were saying three or four weeks ago because it takes time to compile the surveys. But, I think the thing I would say is that the petrol price is down quite sharply. You know, it was around 280 around my house last night.

[00:04:02]Um, and what you tend to see is that the consumer reacts quite quickly to falls in petrol prices. Consumer sentiment improves, consumer spending on the nice-to-haves improves quite significantly, inflation expectations fall. I think we'll see that happen when we see the data come out. Perhaps later this month, or certainly next month.