"The hiking cycle could well prove more dramatic than many expect. We are genuinely concerned that we will be faced with economic speed wobbles in the year ahead."
- Stephen Toplis, head of research at Bank of New Zealand Ltd.
There have been a lot of prerequisites to suggest the New Zealand economy has a great potential to speed up in the third quarter, and the report from Statistics New Zealand surprised markets on the upside. Data showed the nation's gross domestic product ticked up 1.4% from the second quarter, when it rose an upwardly revised 0.3%. This is the biggest gain since the fourth quarter of 2009 and slightly better than the 1.1% growth expected by analysts. On a yearly basis the economy expanded 3.%, posting the highest rate in six years. The rise was mostly led by a 17% jump in agriculture, with the sector accounting about 5% of the economy. This is the strongest gain in more than 25 years. While construction sector is still lagging behind, capital investment posted an impressive 3.1% increase. Despite the fact the drought curbed farm output during the first half of the year, latest indicators are suggesting the domestic economy is building a head of steam.
Stronger-than-expected data is bolstering the case the RBNZ will start raising interest rate next year. In this case New Zealand will become the first developed country to begin increasing borrowing costs, as improved manufacturing, milk output and higher home prices are all stoking inflation. There is a high possibility that interest rates will be increased in the first or second quarter of the year, hence, the kiwi is set be an outperformer during the 2014.
© Dukascopy Bank SA