June growth ‘underwhelming’

Railway workers gather north of Kaikoura, at a remote site, watching the final track-weld a...
Railway workers gather north of Kaikoura, at a remote site, watching the final track-weld a fortnight ago, rejoining the Picton to Christchurch line, severed since November’s earthquake. Photo: KiwiRail
New Zealand’s economic growth for the quarter to June hit the top end of analysts’ expectations of a 0.8% gain, fuelled by tourism and a recovery in the transport sector.

Gross domestic product (GDP) rose from the March quarter of 0.6% to 0.8% for the quarter to June.

However, there was a poor showing by construction and negative effects from the cooling house market. Analysts described the overall economic growth as "underwhelming" and "not that impressive".

Economists for Westpac and ASB both singled out the positive boost from the World Masters Games and the Lions rugby tour, and also the negatives around the waning construction sector.

Michael Gordon.
Michael Gordon.
For the year to June, economic growth eased to 2.7%, having been 2.9% for the year to March.

Statistics New Zealand national accounts senior manager Gary Dunnet said strong export and domestic demand underpinned growth for the latest quarter.

"Demand for exports has resulted in strong production growth in manufacturing and service industries," Mr Dunnet said.

Westpac senior economist Michael Gordon expected the June quarter to mark the high point for growth this year, given the one-off boost from tourism and a rebound in agriculture and transport from previous weak quarters.

"In that light, a 0.8% quarterly rise is not that impressive, and even less so in per capita terms, a 0.3% rise, following a flat outturn in the March quarter," Mr Gordon said.

Construction activity fell by 1.1%, following a 2.1% fall the previous quarter and residential, non-residential and infrastructure work were all lower for the latest quarter.

Jane Turner.
Jane Turner.
"The slowing housing market is having a direct impact on the GDP figures," he said.

Financial services fell 0.2%, as lending growth slowed, and rental and real estate services rose by 0.8%, but that was relatively soft for a June quarter.

On the positive side, there was an expected rebound in transport activity, up 3.5%, manufacturing activity rose 1.8%, largely driven by a 5.7% jump in food manufacturing, plus there was a 4.1% rise in petroleum and chemical manufacturing, against Westpac’s expectation of a fall.

ASB senior economist Jane Turner said the 0.8% was stronger than its 0.6% prediction, but otherwise was in line with market expectations, and just below the Reserve Bank’s 0.9% expectations.

"GDP growth has been underwhelming over the past year," she said.

The second quarter "rebound" was "relatively muted".

"Economic growth needs to pick up on a sustained basis in order for the Reserve Bank to be confident domestic inflation pressures will return to target," Mrs Turner said.

As expected, growth was led by a strong recovery in transport and increased visitor spending from hosting the Lions and Masters Games, retail sales lifted 2.8%, while on the expenditure side, exports of services lifted 5.4%.

"However, growth was capped by weak outcomes in construction, house sales, mining and non-primary manufacturing," Mrs Turner said.

"One area where we are surprised was the fall in other construction activity, which typically includes infrastructure construction," she said.

The decline in aggregate activity came despite the boost from the Kaikoura rail link and State Highway 1 reconstruction activity.


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