New Zealand economy managed to expand during the second quarter after it began contracting since the first quarter of last year. The economy unexpectedly expanded backed by improving household spending that accounts for 60% of the economy, besides increasing exports of dairy products.

New Zealand GDP quarterly reading showed that the economy expanded 0.1% in the second quarter compared with a prior contraction by 1.0% that was revised to -0.8%, while it was forecasted to shrink 0.2%. The economy shrank an annual 2.1% in the second quarter after a previous contraction by 2.7% that was revised to -2.6%, while the reading came better than the forecasted -2.6%.

However, the economy topped the Reserve Bank's forecasts as the bank forecasted that the economy would record a positive growth rate by the third quarter of this year, while other forecasts said that the New Zealand economy would start expanding by the beginning of next year, having in mind that Alan Bollard the Reserve Bank governor expected the economy to shrink 0.1% in the second quarter before it starts to expand in the third quarter.

Household spending improved during the second quarter to climb 0.4%, worth mentioning that household spending accounts for 60% of the economy. Sales of nondurable goods like food inclined by 0.8% along with increasing spending on services such as medical and health. On the other hand, purchases of durable good like cars and machines remain weak.

Moreover, the housing sector began showing signs of recovery recently supporting economic growth. House prices inclined by 1.2% in August as demand increased in the property market due to low interest rates.

Regarding the exports sector, it improved as exports of goods and services climbed 4.7% during the second quarter along with increasing demand for dairy products and lumber. On the other hand, imports volume dropped 3.8% as domestic demand for imported cars and computers remain weak.

The Reserve Bank of New Zealand kept interest rates at the low record of 2.50% to support economic growth, while the bank expected last meeting that more cuts in the benchmark would happen if needed. Low interest rates had a great role in the recovery process as it helped to boost demand and heal the deteriorated conditions in the business sector.

Business investment edged up by 1.3% as companies spent more on software and oil gas explorations. Output from primary industries climbed 1.5% in the second quarter as demand is advancing, while farm output rose 0.5%.

We should say that New Zealand economy is still facing some difficulties on its way to full recovery as unemployment surged to 6.0% in the second quarter affecting household spending and leading to deteriorating retail sales. Also business conditions remain weak along with declining sales that forced some companies to shutdown plants.

The New Zealand dollar gained after the release of the GDP reading to be traded around 0.7292 against the dollar in 23:30 GMT after recording a high of 0.7311, while against the yen it broke the 66.00 level to record a high at 66.23 and it is currently trading around 66.00. As for New Zealand stocks it climbed after today's fundamentals as the L NZX 50 INDEX inclined by 0.18% to reach 3148.40 points.