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NZ economy grows as architecture, engineering services pickup ahead of building boom

Thursday 19th September 2013

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New Zealand's economy grew faster than expected in the second three months of the year as demand for architecture and engineering services picked up ahead of the anticipated construction boom, trumping the impact of drought on agriculture.

Gross domestic product grew 0.2 percent to $37.26 billion in the three months ended June 30, slowing from a revised gain of 0.4 percent in the March quarter, according Statistics New Zealand. That was ahead of 0.1 percent growth forecast in a Reuters survey of economists. Annual growth of 2.7 percent was ahead of the 2.4 percent pace predicted due to upward revisions to prior quarters.

The New Zealand dollar climbed to a new four-month high 83.84 US cents from 83.24 cents immediately before the numbers were released. The trade-weighted index rose to 77.75 from 77.26.

Business services grew 2.6 percent in the quarter, underpinned by architecture and engineering, adding to a 3.9 percent gain in the first three months of the year. Construction expanded 2.3 percent on the strength of civil engineering activity, growing an annual pace of 14 percent.

"There was a massive increase (in those services) last quarter and we've now seen another where the size of the gain was even more than we were expecting," said Dominick Stephens, chief economist at Westpac Banking Corp in Auckland.

"Architecture and engineering should near a peak, but I wouldn't overplay that" with a lot of construction work in the pipelines around the country with the Canterbury rebuild, Auckland residential housing sector and earthquake strengthening, he said.

The GDP gains were offset by a 6.4 percent contraction in agriculture as the effects of the worst drought in seven decades weighed on production and prompted farmers to slaughter stock to deal with dwindling food supply at the time. The drought has sliced 10.4 percent from agriculture activity since the December 2012 quarter.

"Because of the strong increase in slaughter numbers in the 2013 drought, especially for dairy cows, it may take longer to recover from than previous droughts," Statistics NZ said in its report. "Farmers may take longer to restock their herds and build production back from pre-drought levels."

The drought was expected to keep a lid on New Zealand's growth through the first half of the year, though elevated services and manufacturing activity surveys and upbeat confidence gauges imply the economy has picked up in the current quarter.

Westpac's Stephens said the drought didn't bite into activity as much as anticipated, and that the historic revisions show "a really strong recovery."

Manufacturing shrank 0.1 percent in the quarter as the drought weighed on food processing, and exports of meat, dairy and food, beverages and tobacco all declined in the period.

Household consumption expenditure grew 1.5 percent in the quarter, with spending on durable and consumables up.

Stephens said the gain in household spending showed the impact rising house prices was having on broader consumption.

Business investment, which excludes spending on residential housing, grew 5.7 percent in the quarter, led by other construction and transport equipment. Investment in residential housing shrank 1.6 percent in the period.

Gross fixed capital formation rose 3.8 percent and inventories built up by $248 million in the quarter.

The expenditure measure of GDP grew 0.1 percent in the quarter for an annual gain of 2.7 percent.

Real gross national disposable income grew at a quarterly pace of 1.4 percent in the three months ended June 30, for an annual increase of 2.3 percent.

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