Construction expected to drive GDP: economist

Stronger construction activity is expected to have driven increased economic activity in the three months to September.

Statistics New Zealand will this week release its GDP (gross domestic product) data, which is a measure of the output produced in an economy during a set period.

ASB chief economist Nick Tuffley expected GDP to have increased 0.6% over the quarter.

''This follows strong growth over the first half of the year, partly reflecting temporary factors such as exceptionally strong dairy production as a result of excellent weather conditions.

''While pasture conditions have generally remained favourable, we do not expect dairy and meat production will be as strong over the coming year.''

Beyond the boost from strong agriculture and food manufacturing production, activity over the first half of the year was also boosted by post-earthquake rebuilding, he said.

That was also expected to have carried on into the September quarter. Building work in place data showed a substantial increase in construction activity,

which was particularly strong in Canterbury. Statistics NZ noted that Canterbury accounted for about half of the increase in both residential and non-residential building.

Encouragingly, the recovery in non-residential construction activity finally appeared to be starting, Mr Tuffley said. That followed some weakness seen over the first half of the year.

Much of the strength in non-residential construction in the third quarter appeared to be driven by rebuilding in Canterbury. Beyond the rebuilding, businesses had generally been cautious about non-residential investment given the offshore uncertainty and modest demand.

Recent confidence surveys suggested businesses might finally be starting to feel more optimistic towards investing in new commercial buildings, he said.

On top of the Canterbury rebuild, stronger housing market activity appeared to be encouraging house building, particularly in Auckland.

The continued increase in Auckland building consents in recent months suggested construction activity would continue to lift.

That should help alleviate the acute housing supply constraints in the region, although the full effects would take a year or more to flow through, Mr Tuffley said.