Manufacturing boost for GDP data

Manufacturing was at the forefront of the country's gross domestic product (GDP) data yesterday, in line with analysts' predictions and slightly ahead of Reserve Bank expectations.

Manufacturing activity is at its highest level in eight years, with Otago-Southland leading the country's four regions in expansion for several months.

For the first time in more than three and a-half years, Reserve Bank governor Graeme Wheeler this month lifted the interest-driving official cash rate (OCR) - from its record 2.5% low, to 2.75% - to quell inflation pressure.

He signalled the likelihood of a total 2% climb during the next 24 months.

Statistics New Zealand (SNZ) GDP data said manufacturing activity grew 2.1% for the quarter to December, driven by increases in food, beverage, and tobacco, and machinery and equipment manufacturing.

Annual growth was 2.7% and GDP was 3.1% higher than the corresponding quarter a year earlier, giving credence to further OCR hikes amid Reserve Bank concerns of rising inflationary pressure.

Dairy farming and dairy product manufacturing both fell during the December quarter, following strong increases the previous quarter, when milk production rebounded from the drought in early 2013.

''While dairy activity fell this quarter, exports were up strongly, as production from last quarter was sold overseas,'' SNZ national accounts manager Michele Lloyd said.

Westpac chief economist Dominick Stephens, said the GDP data was ''bang in line with expectations''.

''We're in a pervasive economic upswing owing to the Canterbury rebuild, construction activity in Auckland, consumer buoyancy following house price increases and a four-decade high in the terms of trade,'' Mr Stephens said.

Council of Trade Unions economist Bill Rosenberg urged some caution.

''Business investment, which drives jobs growth, had been expected to be booming by this time but is looking surprisingly weak,'' he said.

In December, Treasury had forecast 11.7% annual growth in market investment by March 2014.

Business investment grew only 0.9% in the December quarter, with only one good quarter growth, of 7.4% in June, during 2013, Mr Rosenberg said.

''But we have yet to see the results in sharply falling unemployment and good wages growth,'' he said.

Mr Stephens said given the data, the Reserve Bank would have to gradually increase the OCR over the course of the year, which would slow the housing market, diminish consumer buoyancy and eventually slow GDP growth.

''But this is a process that could take years,'' he said in a statement yesterday.

Manufacturing grew 2.1% to $5.15 billion in the quarter, its highest level since March 2006, and accelerating from 1.6% expansion in the September quarter.

Dairy production fell in the quarter as inventories were run down $18 million in the period, though other food, beverage and tobacco manufacturing made up for the shortfall.

Transport equipment, machinery and equipment manufacturing grew 6.2% in the period, BusinessDesk reported.

New Zealand's primary industries grew 0.3% led by a 9.5% expansion in mining driven by exploration activity, while agriculture shrank 1.6%, forestry contracted 0.6% and fishing declined 0.7%.

Business services shrank 2.1% in the quarter, driven by slowing architectural and engineering work, which had been at elevated levels in recent quarters to help prepare the $40 billion rebuild of Christchurch.

Construction activity grew 0.4% in the quarter as investment in infrastructure made up for largely flat spending on residential housing and a decline in non-residential work.



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