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NZ economic growth slows to 0.1% in 2Q as construction, mining contract

Thursday 22nd September 2011

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New Zealand’s economic growth slowed more than expected in the second quarter, as a contraction in the construction and mining sectors hindered the country’s recovery.

Gross domestic product grew 0.1% in the three months ended June 30, according to Statistics New Zealand, short of a Reuters survey of economists picking a 0.5% pace of growth and a 0.6% rate forecast by the Reserve Bank. Statistics NZ revised first quarter growth up 0.1 percentage points to 0.9%, taking annual GDP growth to 1.5%.

The construction sector continued to weigh on the economy, shrinking 4.3% to $1.1 billion in the quarter, with the value of building work put in place falling to a decade low amid a lack of new housing. That’s set to reverse when the rebuild of Christchurch kicks in, though that has suffered several delays amid confusion as to whether insurers will re-enter the market.

Mining shrank 5.4%, recording its fourth consecutive quarterly decline on weak oil and gas extraction. Fishing, forestry and mining as a whole contracted 3.8% to $809 million.

“Levels of activity are nearly back to where they were in the peak of December 2007,” Statistics NZ’s Jason Attewell told a briefing in Wellington.

The New Zealand dollar sank to as low as 79.93 U.S. cents from 80.40 cents immediately before the release, having already shed 2 cents during Northern Hemisphere trading. It was recently at 80.20 cents.

The release comes hot on the heels of a Federal Reserve decision to sell short-dated bonds to buy long-term debt in a bid to improve U.S. liquidity and bolster private borrowing in the world’s biggest economy in a bid to give it a kick-start.

Global markets have been in turmoil since August, when Standard & Poor’s downgraded the U.S.’s credit rating, while more recently Europe’s never-ending sovereign debt crisis has been grabbing headlines, and Reserve Bank Governor Alan Bollard today told a business audience in New York he is in no hurry to raise the official cash rate from the current 2.5%.

Manufacturing, which underpinned growth in the previous two quarter, shrank 0.1% to $4.12 billion, led by declines in machinery and equipment manufacturing, and wood and paper products.

Last week, the BNZ-Business New Zealand performance of manufacturing index showed the sector slowed for a third month in August to 52.9, though was still expanding. Similarly, the Performance of Services Index showed the sector grew for a seventh month in August.

Service industries grew 0.5% to $24.4 billion in the quarter, led by strong gains in finance, insurance and business services, which expanded 1.5%, its fastest growth since March 2005.

Agriculture grew 4.3% to $1.81 billion on increases in dairy and livestock production, as New Zealand producers continued to benefit from record high commodity prices.

Household consumption expenditure rose 0.3% in the quarter, with increased spending on durable goods, such as furniture and major appliances.

General government final consumption fell 0.1% in the June quarter, led by 0.8% decline in central government administration. The government is looking to shave an annual $1 billion from the public sector’s retirement plans and general operations.

Gross fixed capital formation, which measures investment in fixed assets, shrank 0.4% in the period, following a 1.3% decline in the first three months of the year. That was based on tepid investment in residential housing.

Total inventories were built up by $126 million in the quarter, following a $101 million run-down in the March period. That was driven by the New Zealand Defence Force buying aircraft parts for its Orion upgrade.


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