The NZ economy is heading for a slide back into negative growth territory after a surprise slowdown in the second quarter took markets by surprise.
With the impact of the Christchurch quake expected to wipe 0.4% off growth in this quarter and possibly the final quarter of the year, the economy looks like its going to spend at least six months in the red.
A week ago, the Reserve Bank said the magnitude 7 earthquake that struck at the start of this month has “significantly disrupted economic activity” and is likely to slow growth further in the third quarter,.
That was before the extent the slowdown in the second quarter was known.
The NZ economy only grew 0.2% from the March quarter, figures from Statistics New Zealand (SNZ) said yesterday.
That’s sharply down from the 0.9% forecast by the Reserve Bank of NZ and market forecasts of 0.7% growth.
The major factors were the biggest rise in construction in nearly seven years which offset a sharp fall in manufacturing.
For the year to June, average GDP growth was 0.7% compared to a year earlier (0.5% in the first quarter).
Growth in the second quarter was 1.9% above the same quarter of 2009.
It was the first annual rise in GDP since the year to September 2008.
The sluggish rise calls into question rate rises from the central bank earlier this year and means there won’t be any more increases until well into 2011.
The central bank last week lowered its growth forecasts, blaming falling home sales and consumer borrowing.
The bank said annual average growth will be 2.6%’in 2010, down from 3.1% forecast in June. Growth will slow to 2.5% in 2011, it said.
Those forecasts will now have to be reworked.
That saw the Kiwi dollar fall yesterday, losing half a cent to around 73.20 USc because unlike Australia, rate rises are now no longer seen happening for a while.
The contrast with Australia is quite telling, our second quarter growth was a stronger than forecast 1.1%, and 3.3% in the year to June
The figures show the construction activity was up 6.4% in the June quarter, the largest rise since the September 2003 quarter, with increases in construction trade services, and residential building activity the largest contributors to the lift in construction.
But manufacturing sector declined 4% in the quarter, with all sub-industries in the category down except for wood and paper products.
The fall in manufacturing was largely due to a 6.9% drop in the food, beverage and tobacco manufacturing category, the largest fall for the category since the series started.
Some analysts put that down to the impact of the stronger Kiwi dollar impacting exports from the manufacturing sector.
Overall activity in primary industries rose 0.6% and a 1.5% rise in the three months to March. The 5% lift in mining in the June quarter was due to increased exploration activity, while actual mining activity fell.
The continuing strong international demand for logs saw forestry and logging activity rise 1%, the sixth consecutive quarter of growth.
Agricultural activity fell 2.1% in the June quarter, due to lower milk production, following a 1% rise in the previous three months.
Along with the fall in food, beverage and tobacco manufacturing, SNZ said there was a 5.9% fall in printing, publishing and recorded media, a 4% drop in metal product manufacturing, and a 9.5% slump in textile and apparel manufacturing.
Activity in the service sector rose 0.4% with higher contributions from finance, insurance and business services up 0.5% (real estate and business services was the largest contributor). Retail, accommodation and restaurants rose 1.3%.
Household final consumption spending was flat in the June quarter, while household spending on durable goods rose 0.8%, and household spending on services fell 0.6%.
With the GST is due to rise on October 1 to 15%, (up 2.5%), the sluggish picture for services and household consumption could see the slight growth become a fall in the next two quarters as consumers adjust
Other taxes are changing with the top personal rate falling from 38% to 33%, but economists say they won’t be enough to offset the short term impact of a rise in price for petrol, food and power and a host of other goods and services.
And the Statistics group also issued a clarifying statement on some of the impacts of the Christchurch earthquake on the economy, growth and other factors.
"It has been reported that the earthquake in Canterbury would likely increase GDP. The rationale behind this claim is that construction activity will be boosted while parts of Canterbury are being rebuilt. Local and central government expenditure will also increase in the short term because of the emergency; however, looking at GDP in isolation gives a false impression that this disaster will be good for the economy.
"GDP measures the goods and services produced by an economy in a given period of time.
"The clean up and reconstruction could boost GDP while it is going on.
"Much construction work will be required to rebuild houses and buildings and even the activity related to demolition of buildings is included in GDP.
"Data for rebuilding work would come through building consents initially, the Value of Building Work Put in Place Survey, then finally into th
