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NZ economy grows 0.8% in 3Q, on manufacturing; inventories surge

Thursday 22nd December 2011

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The New Zealand economy expanded at the fastest pace since 2009 in the third quarter, beating estimates, as manufacturers cranked up production, making up for a contraction in the construction industry.

Gross domestic product rose 0.8 percent in the three months ended Sept. 30, accelerating from a 0.1 percent pace three months earlier, according to Statistics New Zealand. Growth of 0.6 percent was expected, according to a Reuters survey and the Reserve Bank. GDP grew 1.9 percent from the same quarter last year.

Manufacturing activity rose 2.3 percent in the latest quarter, led by production of meat, dairy , wood and paper products though this was matched by a build-up in inventories that some economists say could undermine economic growth in coming months. Total inventories climbed by $1.1 billion, driven by manufacturing and distribution stocks, the biggest increase since the series began in June 1987.

The manufacturing story “is largely about inventory build-up and that doesn’t bode to well for the fourth quarter,” Philip Borkin, economist at Goldman Sachs New Zealand, said before the figures were released.

The Bank of New Zealand Performance Manufacturing Index for November fell to 45.7 from 46.6 in October on a scale where 50 marks the difference between contraction and expansion.

Production fell to 43.6 in the latest month while inventories grew, with a reading of 51.2. Separately, the Economic Survey of Manufacturing for the third quarter showed a jump in inventories, especially for meat and dairy.

Retail, accommodation and restaurants rose 2.5 percent in the third quarter, the biggest gain since the March 2007 quarter, and the government statistician said this partly reflected the Rugby World Cup.

Finance, insurance and business services grew 0.6 percent, the fourth straight quarterly increase.

Construction fell 2.2 percent to its weakest quarterly level since June 2002, creating the biggest drag on growth in the latest quarter.

Fletcher Building, the nation’s biggest construction company, warned that first-half profit would drop 10 percent and full-year earnings growth would stall in the face of weak housing construction in Australia and New Zealand.

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