Wet spring and earthquake hit GDP growth

Kaikoura’s November earthquake and effects on road and rail transport was one of several factors...
Kaikoura’s November earthquake and effects on road and rail transport was one of several factors influencing a dampening of gross domestic product growth for the quarter to December. Photo: NZ Herald.
National gross domestic product growth for the quarter to December has come in surprisingly low at just 0.4%, blamed on a soggy spring, its impact on the primary sector and transport interruption of November’s Kaikoura earthquake.

Economists were expecting GDP in a range of 0.5% - 0.9% for the quarter to December, while the Reserve Bank had predicted 1%.

Subsequently, annual GDP growth for the country eased back to 2.7% year-on-year.

GDP per capita had booked increases of 0.3% in both the June and September quarters, but for December  fell by 0.2%.

Statistics New Zealand national accounts senior manager Gary Dunnet said growth in service industries was partly offset by weaker activity in primary industries, which also flowed through to manufacturing data.

ASB chief economist Nick Tuffley said the 0.4% growth was ‘‘much weaker’’ than expected, the key source having been the transport sector.‘‘Transport was a sector quite disrupted by the Kaikoura earthquake, given the road, rail and port damage which occurred,’’ he said.

Transport’s 0.7% fall had followed a previous quarter rise of 3.7%.

Mr Dunnet said tourist spending was strong, up 5.1%, but household spending growth had tapered off for the quarter, increasing just 0.4%, following two consecutive quarters of strong growth.ANZ senior economist Phil Borkin said some temporary factors played a big part in the overall softness, which was a step down in pace from what was seen earlier during 2016.‘‘In particular, wet spring weather conditions are likely to be the key reason for contractions in both agricultural production, down 0.8%, and manufacturing production, down 1.6%, which together knocked 0.3% basis points off growth,’’ Mr Borkin said.

Westpac economist Sarah Drought said 0.4% was ‘‘well below’’ the analysts’ median expectations of 0.7%, noting what growth there was had been driven by the service sector’s 0.7% aggregate gain, which included business services up 1.7%, as was health, arts and recreation.‘‘Construction remained an important contributor to growth, rising 1.8% in the quarter,’’ Ms Drought said.

However, as expected, the primary sector and food and beverage manufacturing were ‘‘big drags’’ on growth during the quarter, she said. ‘‘Poor spring weather weighed on milk production and meat processing, while forestry pared back some of September’s strong gains and mining production also fell,’’ Ms Drought said.

SNZ’s Mr Dunnet said the service industries continued to grow, increasing 0.7% for the quarter, the main drivers being business services; arts, recreation and other services; health care and residential care.

However, agriculture fell 0.6% due to lower milk production.‘‘This, coupled with falls in forestry and mining, was reflected in lower manufacturing activity and lower primary exports,’’ Mr Dunnet said.

Manufacturing fell 1.6%, driven by falls in food, beverage, and tobacco manufacturing, and also in transport equipment, machinery and equipment manufacturing. ‘‘Exports fell due to lower exports of dairy products; metal products, machinery and equipment; crude oil; and logs and timber,’’ he said.simon.hartley@odt.co.nz

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