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Economy

New Zealand economy surged 2.8% in Q2

GDP growth beats predictions; central bank expected to lift interest rates

New Zealanders line up for takeaway food in Wellington on Sept. 1 as a nationwide COVID-19 lockdown eased, except in Auckland, the nation's biggest city.   © Reuters

WELLINGTON (Reuters) -- New Zealand's economy grew at a much faster pace than expected in the second quarter, officials said on Thursday, reinforcing the view that the central bank will start lifting interest rates despite a recent outbreak of the coronavirus.

Gross domestic product (GDP) surged 2.8% in the three months through to June, Statistics New Zealand said, well ahead of a Reuters poll forecast of a 1.3% increase in growth 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 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, settling at to $0.7320.

"We expect the RBNZ to 'look through' near-term volatility and reduce monetary stimulus, with a series of 25 basis point (rate) hikes starting from next month," said Mark Smith, Senior Economist at ASB Bank.

The central bank delayed raising rates last month after the country was put into a snap COVID-19 lockdown over an new 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 hike at the next central bank meeting on Oct 6.

Annual GDP jumped 17.4% due to a very weak base as the country was in a complete COVID-19 lockdown in the second quarter last year. A Reuters poll had expected a 16.3% rise.

New Zealand has rebounded strongly from a recession last year, largely due to its success in eliminating the coronavirus within its borders and reopening its domestic economy well before other advanced nations.

The country had been virus-free for months until an outbreak of the highly infectious Delta strain in August. The biggest city Auckland remains in lockdown, but the rest of the country has opened up again.

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