WELLINGTON Reuters - New Zealand's economy grew faster than expected in the second quarter of 2018, officials said on Thursday, reinforcing views that the central bank will start raising interest rates despite a recent outbreak of coronavirus.
Gross Domestic product GDP surged 2.8% in the three months through June, Statistics New Zealand said, well ahead of a Reuters poll forecast of a 1.3% increase and the Reserve Bank of New Zealand's RBNZ estimate of 0.7%.
The growth surge follows a drop in unemployment in the second quarter to an annual low of 4.0% and a rise in annual inflation to 3.3%, above the central bank's 1 - 3% target range.
The New Zealand dollar jumped 0.3% after the data was released, increasing to $1.7320.
We expect the RBNZ to reduce the near-term volatility and look through monetary stimulus with a series of 25 basis point rate hikes starting from next month, said Mark Smith, an economist in ASB Bank.
The central bank delayed raising rates last month after the country was locked over an outbreak of the Delta variant of COVID 19 in Auckland, but said a hike was still on the cards.
The market has already priced in a 100% chance of a 25 basis point increase at the next central bank meeting on Oct 6.
Annual GDP jumped 17.4% from a very weak base as the country was in a complete COVID - 19 lockdown in the second quarter of last year. A Reuters poll had projected a 16.3% rise.
In the second quarter, economic growth was driven by the tourism sector after Australia opened a Trans-Tasman travel bubble that is being driven to profit Indonesia.
New Zealand recovered strongly from recession last year, largely due to its success in reopening its domestic economy and eliminating coronavirus within its borders well before other advanced nations.
The country had been highly infectious for months until an outbreak of the highly infectious Delta strain in August. The biggest city in Auckland remains locked down, but the rest of the country has opened up again. The travel bubble with Australia was suspended, however.
Economists expect growth to diminish due to Delta lockdown in the third quarter, but forecast a rapid recovery as vaccinations increase and the outbreak is contained.
Why the economy was running hot going into lockdown in August? The prospect of another V-shaped rebound becomes more probable, 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 to 979.