21 Jun 2018

Economic growth loses momentum with ease in activities

3:01 pm on 21 June 2018

Economic growth was modest at the start of the year with the service sector making up for soft construction activity.

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Spending on business services, telecommunications, tourism and a rebound in dairy production offset a slowdown in the building sector. Photo: 123RF

Official figures from StatsNZ showed gross domestic product, the main barometer of the economy, increased 0.5 percent in the three months ended March compared with the previous quarter, when it grew 0.6 percent.

It was in line with expectatations, with the annual growth rate slowing to 2.7 percent from 2.9 percent.

Spending on business services, telecommunications, tourism and a rebound in dairy production were the main growth drivers, and offset a slowdown in the building sector and disruption to used car imports from the stink bug scare.

"The New Zealand economy has lost some momentum in recent times, with growth in the last three quarters matching or barely exceeding population growth," said Westpac senior economist Michael Gordon.

The main surprise was a 2.3 percent rise in the information and telecommunications sector, while the biggest drag was a 1 percent fall in construction activity, reflecting a wind down in Kaikoura-quake related work and blockages in house building.

But households were also cautious.

"Household spending on services was held back by reduced spending on second-hand vehicles, petrol, and clothing," Stats NZ senior manager Gary Dunnet said.

"The discovery of stink bugs in car shipments during the quarter has reduced the volume of cars available for sale."

ASB Bank senior economist Jane Turner said the economy was ticking over reasonably well, and the Reserve Bank would not need to think about raising interest rates until well into next year.

However, she said the downturn in business confidence was a threat because it might prompt firms to reduce investment, which would affect growth.

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