- New Zealand's economy expanded 0.9 percent quarter-on-quarter in Q4
- Economists still expecting further rate cuts, despite solid growth
- New Zealand dollar pushes higher on news
(Adds detail from Statistics New Zealand, background and comment from economists)
WELLINGTON, March 17 (Reuters) - New Zealand's economy expanded more than expected in the fourth quarter but the tepid inflation picture means economists still expect more rate cuts from the central bank.
The gross domestic product rose a seasonally adjusted 0.9 percent in the fourth quarter versus the prior quarter and 2.3 percent on the year, data showed on Thursday. Economists had been expecting the economy to expand 0.6 percent on quarter and 2.0 percent on year according to a Reuters poll.
While the economy ended 2015 on a solid footing "we are now well into 2016, with slowing global growth, dairy wobbles and tightening financial conditions flagging downside risks," said ANZ Bank Senior Economist Mark Smith.
"Viewed in combination with low inflation and easing inflation expectations, that’s an environment where the odds favour an even lower official cash rate," he said.
New Zealand's central bank unexpectedly cut interest rates to a record-low 2.25 percent last Thursday and indicated that at least one more rate cut was likely. Economists are currently expecting another 25 basis point rate cut in June.
The "surprisingly strong" growth "will not prevent the RBNZ from cutting interest rates from 2.25 percent to 2.00 percent in the coming months," said Paul Dales, chief Australia and New Zealand economist for Capital Economics.
While the economy had more momentum than expected "it's only a matter of time before the weakness in the dairy sector spreads to other areas," said Dales.
Up until recently dairy formed the backbone of the economy, representing around 25 percent of exports. However, global dairy prices have slumped more than 50 percent since early 2014 and the majority of New Zealand farmers are already operating below break-even.
In the fourth quarter, strong growth in the services industries - which make up around 70 percent of the economy - helped offset a fall in manufacturing and agriculture.
The New Zealand dollar, already trading higher after the U.S. Federal Reserve reduced its expectations for interest rate hikes in 2016 to two from four on Wednesday, got a further lift from the better-than-expected number.
Sam Tuck, ANZ senior manager FX, said the kiwi got squeezed higher in early trading on U.S. dollar selling and "it was topped up by the Q4 GDP surprise."
