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NZ economy grows 0.3% in Dec qtr from Sept vs economist and RBNZ expectations of 0.6% growth; Strength in financial services & agriculture offset by manufacturing & govt falls

NZ economy grows 0.3% in Dec qtr from Sept vs economist and RBNZ expectations of 0.6% growth; Strength in financial services & agriculture offset by manufacturing & govt falls

By Alex Tarrant

New Zealand’s economy expanded by 0.3% in the December quarter from the September quarter, as growth in the financial services and agriculture sectors offset falls in manufacturing and government administration.

A Reuters poll of economists had given a median expectation of 0.6% growth for the quarter. The Reserve Bank of New Zealand also forecast a 0.6% rise in its March quarter Monetary Policy Statement. Economists' forecasts ranged from 0.3% to 0.8%.

The New Zealand dollar immediately fell to 81.1 USc from 81.5 USc shortly before the release of the data. However by 2:30pm on Thursday, the New Zealand dollar had returned back to its pre-announcement level against the US dollar.

The lower-than-expected growth will support expectations the Reserve Bank will be able to leave the Official Cash Rate on hold until December this year at least, and may push more economists to start picking rate hikes starting in 2013, as inflation expectations fall due to lower-than-forecast economic activity.

Following the release from Statistics New Zealand, Westpac economists said the figures were a slight downward surprise, but did not change their overall impression of the economy. ASB economists held their pick for a December 2012 OCR hike. ANZ economists said they continued to look for a December 2012 start to the tightening cycle, but this was conditional on economic momentum in the NZ economy picking up in the second half of 2012.

Figures released by Statistics New Zealand on Thursday morning also showed growth in the September quarter was revised down slightly, from 0.8% growth to 0.7%.

Economic activity in the year ended December 2011 was 1.4% higher than in the year to December 2010. The 1.4% annual expansion in the year to December 2011 was highest annual growth for any year since the year to September 2008.

December year growth was up from 1.2% annual growth in the year to September 2011.

Main movements

Of the largest contributors to economic growth in the December quarter, finance, insurance and business services rose 1.3% from September. This was the fifth quarterly increase in activity in this sector, Stats NZ said.

Activity in the agriculture sector rose 3.5% during the quarter, as good growing conditions led to increased milk production in the dairy industry. This followed a 2% fall in the September quarter.

Retail, accommodation and restaurant activity rose 2.2% during the quarter. Activity from spectators and participants of the Rugby World Cup, including accommodation services and the purchase of merchandise and souvenirs, was included in this industry, Stats NZ said.

Meanwhile, manufacturing activity led the declines, down 2.5% from the September quarter. Food, beverage, and tobacco manufacturing was the largest contributor to the decline, Stats NZ said.

Government administration and defence activity fell 2.3%. This was the largest fall in government administration and defence activity since a 3% decrease in the December 1998 quarter, Stats NZ said.

What we spent it on

Looking at the expenditure measure of GDP (as opposed to the production measure which shows less volatility and is Stats NZ’s preferred measure), expenditure on GDP rose 0.5% over the December quarter, following an increase of 1% in the September quarter.

Household final consumption expenditure, which measures the volume of spending on goods and services by New Zealand households, rose 0.8% in the December quarter. This was the eleventh consecutive quarter in which household expenditure rose, Stats NZ said.

“The volume of durable goods purchased by New Zealand households increased 4% in the December 2011 quarter, following an increase of 1.1% in the September 2011 quarter. The latest rise is the largest since a 4.7% increase in the March 2007 quarter, and results from increased spending on furniture and major appliances,” Stats NZ said.

“This increase is consistent with the increase in retail trade activity as measured in the production measure of GDP. Partly offsetting this increase was a decrease in spending on recreational vehicles,” Stats NZ said.

Gross fixed capital formation, which measures business investment plus residential building investment, rose 1.7% in the December quarter, Stats NZ said.

“Investment in residential buildings increased 4.2% in the December 2011 quarter, following a 0.5% decrease in the September 2011 quarter, when investment in residential buildings was at its lowest level since the June 1993 quarter,” Stats NZ said.

“Investment in residential buildings has increased for the first time following five consecutive quarterly decreases. For the year ended December 2011, residential building investment decreased 12%,” Stats NZ said.

Business investment in fixed assets increased 1.1% over the quarter. The main contributors to the increase were:

Transport equipment, up 46.3%, including investment in trains and aircraft. This increase was due to one-off imports of aircraft this quarter (including military helicopters), Stats NZ said.

Investment in non-residential buildings rose 7.6%, while investment in intangibles – exploration and software – rose 4.5%.

Offsetting these increases was a 7.8% decrease in plant, machinery, and equipment. This decrease was consistent with a decrease in imports of these types of goods, Stats NZ said.

Exports of goods and services rose 2.8% over the December quarter, and imports of goods and services fell 2.9%.

Exports of goods increased 4.3%, the largest rise since a 4.8% rise in the June 2009 quarter.

Finance Minister Bill English:

Economist reaction

Westpac chief economist Dominick Stephens:

  • The headline number, growth in production GDP, was weaker than expected. FX markets reacted strongly, sending the NZD half a cent lower. However, interest rate markets were less impressed, sending the 2-year swap rate only 1 basis point lower.

  • The detail of the report was broadly as we expected. Building investment was up very strongly, consumption was respectable, exports were very strong, and imports were down. However, government consumption was very weak, and there was a huge negative contribution from stockbuilding, of 2.8 percentage points.

  • Expenditure GDP rose up 0.5%, roughly in line with expectations.

  • At first blush, we regard this as a slight downside surprise, but it doesn't alter our overall impression of the economy.

  • Evidence on the Christchurch rebuild was mixed. Investment in buildings, both residential and non-residential, was up sharply. However, it seems much of this investment went into service categories. On the production accounts, hard construction activity was up only 1.5%, less than expected.

  • As usual, there were mysteries. The biggest of these is the yawning gap between the production measure of GDP, and the expenditure measure. Expenditure GDP has grown faster for years, meaning that the two measures are now 4.5 percentage points apart. According to expenditure GDP the economy has long-since surpassed its 2007 peak, while according to production GDP the economy is about the same size now as it was in 2007.

  • The communications sector shrank another 1.5% - we suspect this is being mismeasured, and do not believe New Zealanders are communicating with each other less.

ASB economist Christina Leung:

GDP increased 0.3% in Q4, below both our and market expectations. Weaker than expected activity was seen across a broad range of sectors, although the picture of a gradual recovery in underlying activity remains in place.

Manufacturing activity was weaker than expected, partly reflecting a greater than expected decline in the food and beverage sector. This is likely due to a sharper drop in livestock slaughter numbers during Q4. This is largely a technical correction in the seasonal adjustment process, which had seen a strong increase in the previous quarter. Excluding food and beverages, core manufacturing was also weaker than expected. However, the latest Business NZ PMI survey of manufacturing confidence has registered a surge in sentiment, which bodes well for a recovery in core manufacturing activity over 2012.

In line with the retail trade survey, there was a rebound in retail sales volumes. This partly reflected the direct boost from the Rugby World Cup. However, weaker than expected wholesale trade and transport activity indicate the flow-on indirect effects from the Rugby World Cup was not as great as we had expected.

On an expenditure basis, the 0.5% increase was broadly in line with our expectations. While export volumes of goods and services were not as strong as expected, this was largely offset by a sharper than expected decline in import volumes. Plant and machinery investment fell 7.8%, suggesting that businesses remained cautious late last year.

Meanwhile, the 0.8% increase in private consumption was broadly in line with our expectations and points to a recovery in the household sector taking place. There are also tentative signs residential building activity is picking up, and we expect this to continue over 2012.

Implications:

The picture of a gradual recovery in underlying activity remains in place. In particular, the household sector is showing some encouraging signs of improvement, although the latest consumer confidence survey suggests a degree of caution remains. Despite the weaker than expected Q4 result, we continue to expect sharper growth over March quarter 2012 of around 0.8%.

Nonetheless, the decline in plant and machinery investment highlights the continued caution in the business sector. The recovery in activity remains patchy in some areas, and while overall business confidence has improved caution towards expansion of operations remains.

Today’s result points to little urgency for the RBNZ to raise the OCR. As such, we continue to expect it will remain on hold until December.

ANZ economists:

  • Q4 GDP growth was lower than market expectations and the RBNZ’s forecast, coming in at 0.3 percent. There were also small downward revisions to historical GDP data, with the level of activity in Q3 2011 revised down by 0.2 percent.
  • The NZD and interest rates fell moderately in response to the data.
  • As expected there were considerable sector divergences.  Largely as a result of good climatic conditions, agricultural and primary production was strong, despite lower mining activity. The goods sector was a mixed bag, with the rundown in manufacturing inventories, lower livestock slaughtering, and a fall in electricity value added outweighing a lift in construction activity. The Rugby World Cup boost to retail and strengthening housing market activity supported the services sector.
  • Looking ahead, we expect mixed a continued scratchy economic performance as cyclical and structural forces collide.  We are wary of the risk of a post Rugby World Cup lull early this year, though the Canterbury reconstruction work will provide impetus.
  • The RBNZ is in no hurry to lift the OCR. We continue to look for a December 2012 start to the tightening cycle, but this is conditional on economic momentum in the NZ economy picking up in the second half of 2012.

HSBC economist Paul Bloxham:

The quarterly numbers are messy for Q4, as can often be the case with quarterly numbers. 

But the bottom line is that: while the Rugby World Cup did boost the economy, manufacturing production weakened more than expected, particularly due to meat production. 

Growth was +0.3% in Q4, which is lower than the +0.6% expected. The components moved in the directions expected, but the magnitudes were weaker than expected overall. 

On the production side, services were strong in Q4, as were retail, accommodation and restaurants – all consistent with the Rugby World Cup support. But manufacturing was very weak, as livestock slaughtering was down. The public sector also continued to withdraw from the economy, as the government cut back to improve its budget position. 

The expenditure side was also directionally consistent, though magnitudes surprised on the weaker side. The Rugby World Cup (which straddled Q3 and Q4) supported services exports and household consumption in Q4. Investment remained only modest, as the Canterbury rebuild has not really started in earnest yet. In the quarter, a large inventory subtraction was the main surprise. This reflected a rundown in dairy stocks that more than offset the boost to exports. 

Recent timely indicators of conditions have shown improvement in the manufacturing industry, which should support positive modest growth in the first quarter of 2012. 

For the 2011 year as whole, growth was a bit below what had been generally expected in our post-quake March 2011 set of forecasts. Growth was 1.4% in 2011, versus our post-quake forecast of 1.7%. 

This seems to mostly reflect that the reconstruction of Canterbury has taken longer to get started. 

This continues to be the key theme moving into 2012. The reconstruction is yet to ramp up, due to delays caused by aftershocks, coordination and insurance issues. We expect the big ramp up to be later this year.     

Bottom line 
Growth was weaker than expected, despite a significant boost from the Rugby World Cup, as manufacturing production fell, particularly meat. 

The next big support for growth comes from the Canterbury reconstruction, which we expect to ramp up in H2 this year. 

We still expect that the RBNZ’s next move is up, and expect hikes in H2. 

First NZ's Chris Green

On the monetary policy front, given that the latest GDP outturn was below RBNZ expectations, this suggests more spare capacity and less potential inflationary pressure than the RBNZ had previously anticipated. As such the RBNZ is likely to be increasingly comfortable with the maintenance of stimulatory interest rate settings, with expectations likely to slip from their current December 2012 tightening timing out into the first quarter of 2013. 

Reflecting the disappointing GDP outturn, the recent presentation from the RBNZ of a more gradual interest rate tightening profile in their March 2012 MPS and set against a potential backdrop of easier global interest rate settings, we retain our expectation that the RBNZ is likely wait until the March 2013 MPS before raising the OCR by 25bps to 2.75%.

(Updates with ASB, Westpac, ANZ, HSBC, two videos)

Economic growth

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41 Comments

Shouldn't the headline more accurately read "GDP rise less than economists, RBNZ and Treasury expected".

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Credit growth 10x greater then GDP growth.

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Is this a "hard landing?"  Or is that still comming?

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If you are using the rear view mirror (RBNZ, Treasury, bank economists) it is still to come.

 

If you are looking out the front window the hard landing is clearly visible, looking ugly, and about to impact.

 

Does anyone other than John Key still believe the next housing bubble is about to take off?

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No this is the "Brighter Future" all you mugs voted for

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The term is "Muppets."

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Would be interesting poll to see which party readers/commenters on this site actually voted for ;) would make some opinions/positions aired here more transparent... I for one did not vote national or labour

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I for one voted for no one. I voted for the Nats in 08, was deeply disappointed in their first term, couldn't bring myself to vote for Labour given their lack of leadership and uninspiring policy, Greens have some good policies but also some nutty ones....  

 

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As did you MIA.....effectively vote for National  that is.

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And so you effectivley voted for National...mkiwi..!

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Big assumption :) I said i voted for neither Nats or Labour, not that I didn't vote.

Voted Conservatives actually. Can't stand the existing BS, some accountability via binding referendums sounded good. (Also, note that labour, greens ask for binding referendums only when in opposition, after ignoring multiple referendum results in the past..)

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No I don't think a giant assumption MKiwi...how effective was your vote.....effectively was the operative word.

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You're not wrong there Christov. effectively Nil. If another 2.4% out of the 33% odd that didn't vote voted too for conserves though, very different look to government eh? Out of interest where did u vote Christov? "Effectively"?

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I think it safe to say Mkiwi...I did the unthinkable...but tacticly, it was the best of the options on offer with the worst of Leaders about to get rolled.....but had the voters( the apathetic lazy bas$%ds) turned out to vote, it would have been effective.

 On that note I would say the integrity vote counts for little anymore.....as is demonstrated by the Maori Party vote not being reduced as much as it should have by the Mana Party.

 I don't particularly care for Hone's style  but I believe he has integrity ,and would fight tooth n nail for his people and what he believes in......but alas due to what we are talking about would struggle to gain effective voting numbers.

No I don't believe Key is a man of integrity..i believe he is a self absorbed..self serving..self centered.. Corporate Operative that knows no other way to think......and the emerging results of that are becoming all too apparent.

Cheers

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Thanks for your honest albeit cryptic answer :) is that Mana you voted for? I know Conserves was idealistic, but at 2.5%, (5th highest party in votes i believe?) next election may make for a different story...But my respect for voting for what you believe is the best option for the country, rather than voting for the lesser evil of the 2 major parties...

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The things that really matter in life can’t be measured on spreadsheets.

GDP is stupid to the point of being perverse… it allows for the fact that we purchased some military helicopter killing machines with say, people buying fruit and vegetables….  

Economics is no more than a branch of philosophy like metaphysics and the sooner we all realise this, the sooner we can get back to real living.   The rise of bean counter concerns to the forefront of our “Breaking News” news headlines is one the great failures of our society.

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I would happily go with economics as a belief system that fits within marketing/public relations/perception management, but think your analogy to philosophy is harsher than necessary.

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No really - you, me, anyone, can't measure the things that really matter in life on a spreadsheet - time spent with family and kids, enjoying a sunset, standing on the top of a mountain taking in a vista, enjoying a good meal with freinds.   PERIOD.  So why do we spend so much time focusing on the stupid GDP unit of measurement.

"GDP is an imprecise measurement of economic performance that distracts policymakers from more important measures of societal well-being"
Read more: http://www.time.com/time/business/article/0,8599,1923330,00.html#ixzz1pugyqtvO

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Good news for interest rates.

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And not much else

This figure is a shocker, but consistent with what I've been predicting, so it does not "shock" me whatsoever.

not good for reducing unemployment, and balancing the govt books 

This govt is doing an appalling job. So much for their criticism of Labour's economic mismanagement 

 

 

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Why is it that you can see the link between low GDP and low interest, but are unable to take it a step further and see the cause. Interest rates can't, and won't, go up again because of ever decreasing purchasing power. That will eventually rub off into other areas, particularly where the bubbles have occured.

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GDP rise less than expected..........................NO

GDP rise less than hyped................................Yes

GDP rise less than hoped for.........................God we are reduced to hoping now.

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Expenditure is falling behind production for reasons we have long expounded here.

 

Laws of diminishing returns, cherry-picking leaving the dross, complexity, physical depreciation at an all-time high, all that.

 

It will get harder and harder, yet we will do less and less. Absolutely expectable, if you study physics.

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What does a hard landing look like for

a. those with cash assests

b. those with fixed assests

c. those without assests?

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Fred114.............. on a. and b. it looks like their asses are somewhat closer to their eyeballs from the impact...thus requiring keen observation and a little gel to get the collar down.

On c. it's an opportunity to kiss their overlooked asses goodbye.

 

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The idea of prison as a place to get three squares a day might not be so absurd......

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The govt say Aus and China are still relatively strong, so they are hard pressed to blame international factors for NZ's weakness any longer 

They now need to accept responsibility for this farce, and do something about it

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Matt, I think it is time to stop expecting/hoping for government (or any politician/political party currently in parliament) to fix anything. Current politicians/political parties are the problem, and until we stop looking to them for solutions we are not going to go anywhere positive.

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What would you expect them to do about this situation of spiraling debt and low growth? They have another two years in office. If it is so immanent that doom is upon us, what would you expect to happen instead?

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Here's some solutions. Part 1 is more "pie in the sky", Part II is entirely possible :

Part 1 -  

- I wouldn't have reduced income taxes. And I'd go further and increase taxes on higher incomes (say over 120K) 

- I would have reduced WFF entitlements by 20%

- I would have removed interest free student loans

These initiatives would automatically make a big difference to the govt books.

Then, with a better financial position,  I would have embarked on an ambitious house building programme. Some development would be done in concert with the private sector, some would be simply state housing projects.

This would have boosted GDP growth, and helped unemployment.

However, whilst all this is actually possible, I understand that it is somewhat "pie in the sky" politically as it involves a combination of traditional "right wing" (reducing entitlements)  and "left wing" (increasing taxes) approaches

Part 2

Part 2 involves government initiated policy changes, but govt is hands off once the policy is changed.  These options are both theoretically possible and politically realistic.

I would reduce GST to 7.5% on new build housing, to boost the private construction sector. Complemented by reform of the planning system, we could get house building to double from current lows, meaning total GST revenue from new house building is not necessarily much less than it is at present with the poor house building figures.

I would direct change in development contribution regimes, so that charges are paid on a "per hectare" basis rather than per dwelling basis. For example, rather than paying say 30K per new site / dwelling, a developer pays say $500K per hectare. That policy then acts as an incentive to do higher density. That is, if you build 25 houses on a one hectare site,  you pay $20,000 per dwelling. If you build 15 houses on a one hectare site, you pay $33,000 per dwelling. Tauranga City Council has recently introduced this policy, why can't others? Or why can't the approach be mandated by central government?

I would also open up more greenfield land for development, but subject to rigorous urban design, and environmental, criteria, to ensure bog standard, awful urban sprawl is avoided.       

 

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and before the anti-sprawl doctrinaires have a go at me here is an example from Sydney that shows "urban expansion" can be done in a way that is coherent, appealing and environmentally sustainable:

http://www.gcc.nsw.gov.au/media/Pdf/Box%20Hill/Planning%20Report/Draft%…

 

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its not surprising that NZ is  putt putting along when the enviromental-fundie  taleban has infiltrated popular opinion so successfully. We could have been a rich nation ,The country is chock full of natural resources and favourable growing conditions but its all gotta stay in the ground - leave the coal in the hole and all that -  so many thinking NZers simply bunk off to Oz where the majority of voters are not seduced so easily. ITS AS SIMPLE AS THAT !

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As opposed to the fundie christian taliban such as yourself?  who advocate pillaging the country no matter the damage?

So great, the ppl have been mind washed because they do not agree with you....and not because thats what they freely prefer.

NB You can only get "rich" once off a non-renewable........Britain has used up first all of her coal, and now its oil, its in decline....Conserving the natural "wealth"  for future generations of NZers seems far more fair to me.

Growing conditions, sure grow all you want but again within the context of no long term damage...taht way our children and grandchildren can enjoy some advanatgaes of being NZers.

regards

 

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taht teh ?      appalling even for an  IT wonk

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NZ was a wealthy nation on the back of resource exploitation. Where do you think 70% of our native forests went? Gold and timber were huge for NZ before the turn of the last century. Funny isn't it how natural resource exploitation turns from boom to bust when there's none left and all the profits have been squandered or exported overseas. Native timber logging and the conversion to pastoral land was our equivalent of Australia's coal. Only happens once. By comparison the mineral extraction proposals in relation to the economy are piddly.

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More good news for home-owners able to pay down their mortgages quicker due to 3 more years of low interest rates ....

 

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As I pointed out to SK above this isn't good news for home owners at all, well not deeply indebted ones.

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Agree, on the face of it this is negative, however it will probably keep interest rates lower for longer, so in reality it may actually end up being good news for deeply indebted homeowners.

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I've been on the Herald website and can see no evidence that this poor economic result has really been scrutinised at all. I would have thought there would have been an editorial today. No. Not even any commentary in the business section, as far as I can tell. The Nats seem to be getting a fairly easy ride. Here in Aus both media and the opposition would be climbing into them big time for this sort of economic performance.

BTW, 2011 is tracking at 1.4% GDP growth. In January 2011 Westpac predicted growth of 3.3% in 2011.   Not even close

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Here's Westpac's January 2011 report (forecasts on page 9)

http://www.booksellers.co.nz/sites/default/files/Westpac-Economic-Overview-January2011.pdf

BTW over at the enemy BNZ, ole Mr Alexander thinks the world eoncomy is stabilising (LOL)  and that this bodes well for NZ growth. At least he's been a little more accurate on GDP growth   

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Nice quote from Hugh Fletcher in 1998.Has anything changed since then? Don't think he was a fan of leaving things to the market to resolve or of just meekly following everyone else down the gurgler

“In the 15 years since the Lange government was elected and New Zealand opened up to the forces of globalisation, we have performed dismally, both economically and socially….Prospering in an age of globalisation requires us to determine simply and clearly what is really important to us, and then to focus on insightful and unconventional strategies which will deliver success on these matters. That requires us to exploit not only the spirit and drive of competitive individual entrepreneurship but also the power of co-operative endeavour. Both must be harnessed to make New Zealand residents the ‘owners’ of unique capabilities, so that overseas customers and capital are dependent on us.”

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