Tiny GDP growth as economy close to stalling

Jane Turner
Jane Turner
New Zealand's economy barely missed stalling in the three months to June, but economists say the "speed bump" of 0.1% quarterly growth will not slow the economy for long.

The 0.1% gross domestic product (GDP) was below market expectations of 0.5%.

Strong end-of-year dairy production, a lift in housing turnover and strong growth in retail volumes underpinned growth in the quarter.

That was offset by a weakness in construction, wholesale trade and communications.

ASB economist Jane Turner said the June-quarter result highlighted that some pockets of weakness remained in the economy.

"The Reserve Bank's key concern lies with the current uncertainty around the global outlook and the second-quarter growth result reinforced the lack of urgency for the Reserve Bank to lift rates," she said.

As expected, politicians squared off over the results, with Finance Minister Bill English saying it was important to remember that in the current environment, the GDP figures would jump around from quarter to quarter.

The economy had grown in eight of the past nine quarters and economic growth in the first six months of the year had totalled 1%, ahead of Treasury's Budget forecasts of 0.5% growth for the first six months.

"We still face challenges. The global financial markets, from which we borrow, are increasingly volatile and New Zealand exporters face a headwind from the high Kiwi dollar," he said.

Labour Party finance spokesman David Cunliffe said the figures revealed a New Zealand economy that was at a standstill or going backwards.

"Rather than blaming earthquakes, foreign markets and previous governments, it's time National fronted and took responsibility for the malaise in the economy. National is missing in action in helping to develop regions and there is no sense of a strategy for developing sectors such as forestry, fisheries or manufacturing, to name a few."

At the same time, The Government was still sending short-term cost-based contracts offshore, as was the case for the Hillside workshops, in Dunedin, while laying off New Zealand workers, Mr Cunliffe said.

Despite billions of dollars of insurance money flowing into Christchurch, rebuilding was already behind schedule.

The lack of skills training was so bad the Government was already planning to import overseas workers despite unemployment doubling under its watch, he said.

That theme was also echoed by Greens co-leader Metiria Turei, who said the Government could stop the potential loss of capacity and skills in the building sector by investing in state house construction before the rebuilding of Christchurch was fully under way.

Investment in residential construction was particularly concerning, falling 7.2% in the June quarter. It was now at the lowest level since the June 1993 quarter.

A smarter way forward would be to smooth the contraction by investing in state and community-sector house construction, bridging the gap between the current downturn and the rebuilding of Christchurch, Mrs Turei said.

Ms Turner said that in the second half of the year, Rugby World Cup-related activity would underpin GDP growth.

Moving into next year, she expected the recovery to become more apparent.

Earthquake reconstruction activity should also add to growth from the second half of next year, she said.

- dene.mackenzie@odt.co.nz.

 

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