New Zealand economy contracts in second quarter, leaving room for rate cuts
0.2% quarterly decline in GDP not as weak as expected
GDP data does not significantly change outlook for central bank -economists
Markets fully priced for 25 basis point cut in October
Adds economist comments and further background
By Lucy Craymer
WELLINGTON, Sept 19 (Reuters) -New Zealand's economy contracted in the second quarter as activity fell in a number of major industries, keeping the central bank on track for more rate cuts this year.
Official data out on Thursday showed gross domestic product fell 0.2% in the June quarter from the prior quarter, better than analysts' forecasts of a 0.4% contraction.
It followed a 0.1% rise in the first quarter, which was revised down from a previous estimation of 0.2% growth.
Annual GDP decreased 0.5%, Statistics New Zealand data showed, which was in line with market expectations.
The New Zealand dollar was almost unchanged at $0.6213 after the data, which were seen as too dated to affect the outlook for rates.
Markets are fully priced for another quarter-point cut in October, with a 28% chance of 50 basis points. Swaps have 84 basis points of easing priced in by the end of the year.
"The data today highlight that the economy was indeed in a weak patch in the second-quarter, with widespread evidence that private demand is soft and that this is flowing through to multiple sectors of the economy," ASB Bank senior economist Kim Mundy said in a note.
The data showed activity fell in nine of 16 industries with the retail trade and accommodation, agriculture, forestry, and fishing and wholesale trade sectors all weaker. The manufacturing industry saw the biggest improvement.
Mundy said the data did not significantly alter the picture for the Reserve Bank of New Zealand and ASB Bank continued to expect the central bank would cut by another 50 basis points by the end of the year.
The central bank lowered the official cash rate for the first time in more than four years at its last meeting in August, and RBNZ Governor Adrian Orr said he would like to deliver two more cuts by Christmas.
This is in line with other major central banks that have begun to cut cash rates. The U.S. central bank on Wednesday kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction. The European Central Bank and Bank of Canada have also reduced rates.
Westpac senior economist Michael Gordon said financial markets will no doubt fixate on the idea that the Federal Reserve's decision has opened the door for 50 basis point rate cuts elsewhere, including in New Zealand.
But "there isn't much in the local data that argues for the RBNZ to step up the pace of easing beyond what it had already signalled in its August policy statement," he said.
Reporting by Lucy Craymer in Wellington and Wayne Cole in Sydney; Editing by Jamie Freed
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