ANZ tips OCR rise in February

The country’s largest bank, ANZ, is forecasting the Reserve Bank will raise the Official Cash Rate as soon as February, after Stats NZ reported stronger-than-expected economic growth.

Stats NZ said the economy swung back into a broad-based recovery in the three months to the end of March, with GDP jumping 1.6 per cent.

That was despite Auckland’s level 3 lockdown and the lack of international tourists during the normally busy summer season.

Consumer spending rose 5.5 per cent in the quarter.

‘‘Households spent more on accommodation, eating out, and purchasing big-ticket items such as furniture, audio-visual equipment and motor vehicles,’’ Stats NZ accounts manager Paul Pascoe said.

The growth followed a disappointing 1 per cent drop in GDP in the December quarter and fuelled speculation the Reserve Bank will need to consider raising the Official Cash Rate from 0.25 per cent earlier than expected.

Most economists have been expecting the central bank to start tightening rates around the middle of next year.

But ANZ brought forward its forecast of a rate cut to February on the back of the GDP data. It described the recovery in domestic demand as nothing short of spectacular and said ‘‘a year from now feels too far away’’ for a rate rise.

Expectations of a hike could feed into mortgage rates and be felt by home-owners much sooner.

ASB described the GDP gain as ‘‘whopping’’ and warned strongerthan-expected domestic demand along with growing cost pressures were a potent mix for inflation.

‘‘Borrowers should brace for the end of record-low interest rates,’’ the bank said.

ANZ had been expecting a more modest 0.5 per cent rise in GDP in the March quarter, while the NZ Institute of Economic Research had been among the most optimistic, tipping a 1 per cent gain.

The Reserve Bank itself had pencilled in a 0.6 per cent drop in GDP for the quarter and the Treasury a 0.2 per cent drop, which would have put the country into a technical recession.

The breadth of the economic growth, as well as its strength, appears significant.

The services industry, which makes up about two-thirds of the economy, was the biggest contributor to the GDP gain in dollar terms, showing 1.1 per cent growth. Spending by businesses on plant and machinery leapt 15 per cent.

Stats NZ’s figure means the New Zealand economy grew at the same pace as the United States economy during the three-month period, despite expectations it would be outpaced as a result of the later recovery in the US, and was just shy of Australia’s firstquarter GDP growth of 1.8 per cent.

Finance Minister Grant Robertson said the higher Covid alert levels during the quarter had only a limited impact on the economy but he reiterated his usual warning over ongoing volatility.