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NZ avoids recession as GDP up 0.2% in December quarter

Thursday 24th March 2011

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Data showing gross domestic product (GDP) edged up 0.2% in the December quarter indicates exporters continue to do well while households remain cautious.

Publishing the data today, Statistics New Zealand (SNZ) said primary industry activity lifted $11 million, or 0.4%, offsetting a fall of $12 million in the service industry.

The gain in the latest quarter means the country avoided falling into technical recession in the second half of 2010, following a 0.2% fall in GDP in the September quarter. For the year to December, GDP rose 1.5%.

A key factor in the rise in goods-producing industries in the December quarter was a 2.5% gain in manufacturing, with metal product manufacturing rising 14%, its largest rise on record, while machinery and equipment manufacturing was up 5.5%.

Expenditure on GDP rose 0.4% in the latest quarter, and was up 2.5% for the year.

BNZ head of research Stephen Toplis said it was a relief the economy was clawing its way back but the real test lay ahead.

He also noted SNZ had faced processing difficulties because of last month's Christchurch earthquake, so a significant revision was possible.

"The broad messages from the data were that exporters were doing well while household spending stalled," Toplis said.

Export volumes rose 2.1% across the quarter and were bolstered in particular from primary production including the rapidly growing forestry sector.

In contrast, private consumption rose just 0.1% and might well have been negative had it not been for increased spending by New Zealand residents offshore.

That also showed up in the retail component of the production accounts which contracted 2% for the quarter, Toplis said.

"This not only reflected in lower spending by local folk but also a reduction in foreign visitor spending here in New Zealand."

In part, the weak domestic demand might be put down to the lagged impact of the September earthquake in Canterbury but spending would have taken a hit anyway following the October increase in GST.

A key driver of growth in the December quarter was a build up in inventories by the wholesale sector, Toplis said.

The stock build could be attributed to replacement stock for that written off during the earthquake, unintentional build-up elsewhere in the economy as retail sales failed to bounce and intentional build-up in expectation of future growth.

"Which of these factors dominated the process and how the build-up is unwound will be critical to the understanding of our growth path."

ANZ economist Mark Smith and senior economist Sharon Zollner said the level of output remained 1.9% below its late 2007 peak, and on a per capita basis more than 5% of production had been lost.

"Accommodative monetary policy and high commodity prices are helping, but the headwinds posed by disruption from the September 2010 Canterbury earthquake, ongoing debt reduction and a flat housing market have held back the recovery."



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