Like Australia, NZ experienced weak to sluggish economic growth in the first quarter of this year.
But unlike Australia, which was hit by the slowing in the mining investment boom and weak government spending, NZ’s slowdown was caused by the very dry weather which hit most of the country in the first five months of this year.
And like Australia, the NZ dollar is finally weakening – hitting an 11 month low in the sell off overnight.
The drought across much of New Zealand has had a noticeable adverse impact on economic growth in the three months to March, offsetting in part the still positive contribution from the slow rebuilding of earthquake-shattered Christchurch.
(A huge winter storm and blizzard has dumped snow, sleet and rain across much of the country’s South Island yesterday and it will continue into the weekend).
And the impact of the drought will cut growth over the next few quarters, according to Statistics NZ, by keeping milk production lower than normal and lower fertility rates for cows.
Statistics New Zealand said yesterday that first quarter GDP slowed to an 0.3% rise from the December quarter, a sharp slowing from the 1.5% quarter on quarter growth seen in the final three months of 2012.
That compares to Australian first quarter GDP growth of 0.6%. NZ growth in the year to March was up 2.5%, thanks to that strong burst in the December quarter of last year. That was the same rate as in Australia in the same period.
The Canterbury rebuild boosted activity for construction and related services, Statistics NZ said. It boosted business services and constriction activity which were the biggest contributors to growth in the quarter.
Business services (up 3.9%) were driven by architectural and engineering services in Canterbury and Auckland. Activity related to the census, which was held at the end of the quarter in March, is also included in this industry. And construction was up 5.5%, thanks to residential building and associated construction services activity in Canterbury.
Household spending rose 0.4% in the quarter and has not fallen since the March quarter of 2009. It is up 10.1% in that time. Investment in fixed assets rose 0.3% in the quarter, thanks mostly to that rise in home building.
The rest of the economy was a mixed bag, but it was coming off the very strong growth in the previous quarter.
That saw agriculture detract 4.7% in the quarter, thanks to the drought which cut production on milk and other dairy products. Information media and telecoms saw a 3.1% fall due to a drop in phone call traffic in the quarter.
"The impact of the drought showed up as expected, with lower milk production and higher slaughter numbers for the first three months of 2013," Statistics NZ said. "We expect the drought will impact on the economy for several quarters, as lower herd numbers and conception rates will affect future production."
New Zealand is a major market for Australian companies, especially banks and other financial services groups, retailers and print media. News that the economy is still growing, with siolid household spending, is good news for retailers such as Woolworths and Bunnings.
Our big four banks dominate the NZ market and enjoying something of a home lending boom, unlike in Australia. The Reserve Bank of NZ has acted to cool the top end of the home lending market by increasing loan to valuation ratios.
In some respects the NZ economy is better balanced than the Australian economy at the moment – except for the impact of the drought.
But the major influence remains the rebuilding of Christchurch which is expected to continue to have a positive impact well into 2014.
