15 Jun 2017

NZ economy continues modest growth

2:37 pm on 15 June 2017

The economy has grown at a slightly faster pace in the past three months, despite a building slowdown.


Construction activity has dropped by 2.1 percent, the first fall in almost two years. Photo: RNZ

Official figures show gross domestic product, which is a broad measure of the health of the economy, expanded 0.5 percent in the three months to March.

That compares with growth of 0.4 percent in the previous quarter.

That was lower than most economists had expected.

"Much lower building activity combined with mixed results for the service sector took the shine off higher dairy production and saw a second quarter of moderate overall GDP growth," Statistics New Zealand spokesperson Gary Dunnet said.

Construction, which has been a key driver of activity, contracted for the first time in almost two years with a 2.1 percent fall. Despite this decline, strong increases last year led annual construction to rise 9.3 percent.

Agriculture grew 4.3 percent due to higher milk production after a slow start to the season. That flowed through to higher dairy manufacturing, with more milk available for processing.

Dairy exports fell 11 percent in the quarter, resulting in a build up of dairy inventories.

Household spending bounced back, growing 1.3 percent, as people spent more on cars, audio-visual equipment and clothing, while business investment experienced its largest quarterly rise in almost seven years.

GDP per capita declined 0.1 percent in the quarter, but rose 0.9 percent for the year.

On an annual basis, average growth edged down to 3 percent.

When comparing activity in the December quarter with the same period a year ago, the pace of growth fell from 2.7 percent to 2.5 percent.

Two quarters of sub-trend growth have raised questions.

"Could this be temporary or a sign that momentum is not as strong as thought?" ASB chief economist Nick Tuffley said.

Building consents have eased, while rising costs and tighter lending restrictions have crimped the building sector.

"We don't expect to see residential construction pick up materially until the end of 2017," Kiwibank chief economist Zoe Wallis said.

Others are more sanguine, with ANZ senior economist Phil Borkin saying there were signs of momentum accelerating over the near future.

Consumer confidence remains upbeat, business investment has risen, while a rising population, low interest rates and stronger dairy prices will underpin the economy.

But ASB's Nick Tuffley has raised a warning.

"[The] growth contributions from tourism and construction are likely to be smaller over the next few years, compared to the previous years.

"If the rest of the economy is not firing on all cylinders when growth slows in those sectors, then growth will struggle to lift above its trend rate."

The size of the economy stands at $265 billion.