New Zealand Economic Growth Sustainable Despite Interest Rate Hike

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The economy of New Zealand grew 1.1 per cent during the first three months of the year compared to 0.9 per cent in the fourth quarter of 2013. According to economists, the country's economy had probably accelerated during the first quarter of the construction and rebuilding in Christchurch.

The growth supports the Reserve Bank of New Zealand's view to go ahead with the interest rate hike to control inflation. The RBNZ said the first quarter economic growth marks the fifth quarter that a growth of 1 per cent has been reached in the past 6 years.

The Reserve Bank said the country's economic expansion has gained "considerable momentum" and has raised its growth estimate in the first half of 2014 from 3.5 per cent to 4 per cent. Reports said net immigration is expected to reach as high as 40,000. New economic data released on June 12 may be taken by investors as an indicator whether or not the Reserve Bank will raise interest rates again by July.

ASB chief economist Nick Tuffley said the RBNZ the boost will have a stronger effect on migration as well as housing and housing demand. Mr Tuffley said the RBNZ considers the emerging recovery of business investment. The central bank is concerned about the inflation on construction costs considering the surge in rebuilding activities.

ASB expects the construction sector to contribute significantly to New Zealand's GDP after government data revealed residential construction grew 15 per cent in the first quarter while non-residential work rose to 17 per cent.

Meanwhile, a new report by Oxfam revealed a widening gap between New Zealand's rich and poor. According to the latest Credit Suisse Global Wealth Databook, the wealthiest 10 per cent of New Zealanders are richer than the rest of the entire population.

Oxfam New Zealand Executive Director Rachael Le Mesurier said the "extreme inequality" is worrying. She said the widening gap between the rich and poor is harmful to the sustainability of economic growth and may result in social problems. 

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