WELLINGTON (Reuters) - New Zealand's economy grew by a weaker-than-expected 0.6 percent in the fourth quarter of last year as hot weather hampered dairy production, sending the local currency lower on Thursday and cementing expectations the central bank will hold interest rates for a prolonged period.
Consumers and businesses looked to have largely gotten over the political jitters which had weighed on growth earlier last year ahead of the September 2017 election, but analysts said more clarity was needed on the impact of the planned policies of the new centre-left Labour government for consumption to pick up more significantly.
Looming government measures to take the heat off the housing market, including more stringent tax rules and a ban on foreign buyers, are expected to weigh on growth into 2018.
"We expect growth to remain at a more subdued pace this year, as the new government's policies – particularly around cooling the housing market – are expected to be a drag on activity on balance, at least initially," said Michael Gordon, senior economist at Westpac.
The economy's annual growth rate was 2.9 percent, below the 3.1 percent expected by analysts, who had on average forecast 0.7 percent quarterly growth.
The data weakened the New Zealand dollar <NZD=D4> to $0.7303 from around $0.7330.
The tepid result was largely due to weakness in production of dairy products, the country's top goods export, which saw agricultural production fall 2.7 percent.
"Hot, dry weather appeared to have a negative impact this quarter on agriculture production....Falling milk production was reflected in lower dairy manufacturing and dairy exports," said Statistics New Zealand national accounts senior manager Gary Dunnet in an emailed statement.
The result also fell slightly short of Reserve Bank of New Zealand forecasts of 0.7 percent, which could give the bank even more impetus to keep interest rates on hold at a record low of 1.75 percent when it releases its policy decision on March 22.
The bank has signalled it would keep rates on hold, possibly for years, until it was confident inflation had recovered after spending years below the target band.
Nevertheless, the economy experienced buoyant retail spending and strong business investment.
Household spending grew 1.3 percent in the fourth quarter as consumers splashed out on groceries and eating out, while fixed asset investments such as factory and IT equipment rose 2.1 percent, Statistics New Zealand said.
"Stepping back, while today’s figures are perhaps a touch disappointing, they still paint a picture of an economy recording a respectable pace of growth," said Phil Borkin, senior macro strategist at ANZ.
"And looking forward, it is a pace of growth we more-or-less expect to continue," he said, adding there were "few implications for monetary policy."
(Reporting by Charlotte Greenfield and Marius Zaharia; editing by Clive McKeef)
