Economic growth down slightly in December quarter

12.00pm - By SIMON LOUISSON

The economy grew by 0.6 per cent in the December quarter, slightly less than economists had forecast, Statistics New Zealand said today.

That meant that annual growth in 2003 slowed to 3.5 per cent from 3.9 per cent in the September year and 4.3 per cent in 2002. The annual rate has now declined for four consecutive quarters.

A 3.5 per cent growth is still well ahead of New Zealand's average rate of growth, but the slowdown that economists had forecast may have begun to bite earlier than expected.

Economists had forecast quarterly growth of 0.8 per cent.

New Zealand has outperformed the OECD average for several years but the OECD average growth in the December quarter was higher at 0.9 per cent. Australia's growth rate in the quarter was 1.4 per cent.

The slightly slower than forecast growth may encourage Reserve Bank Governor Alan Bollard to leave interest rates on hold again at his next review, instead of raising them as he indicated earlier this month.

On a per capita basis (taking into account population increase), GDP increased 1.8 per cent in 2003 following a 2.8 per cent increase in 2002.

Growth in the December quarter was spread between internal and external demand.

Business investment, up 3.7 per cent, and consumer spending up 0.8 per cent, pushed internal demand up 0.7 per cent.

External demand was driven up by increased dairy exports and tourism.

Major contributions to the increase in household spending in the quarter came from expenditure on non-durable goods and services, up 3.8 per cent and 1.2 per cent respectively. Also contributing to the lift was increased spending overseas by New Zealand resident households -- up 22 per cent following an 11.8 per cent increase in the September quarter.

Spending on durable goods fell for the first time in 12 quarters with declines in spending on used cars, furniture and appliances. However, on an annual basis, spending on durable goods was still up by 8.5 per cent.

In a positive economic sign, the increase in business investment was largely due to spending on plant, machinery and equipment, up 10.6 per cent. Much of this was met from imports.

Investment in new housing fell 3.1 per cent following six quarters of growth. Despite the fall, new housing investment in 2003 was up 19.6 per cent.

Export volumes rose during the quarter, with exports of goods and services rising 4.3 per cent and 7.8 per cent respectively. Dairy exports contributed to the rise, up 24.6 per cent in the quarter.

The rise in export of services reflected a strong rise in in-bound tourism following three quarterly declines.

Import volumes rose 4.6 per cent in the quarter mainly due to a rise in imports of machinery and electrical equipment.

A 3.4 per cent lift in the imports of services was strongly influenced by increased spending by kiwis travelling abroad -- up 21 per cent.

Industry production was mixed in the quarter. Growth continued in the service sector, up 1.5 per cent. Wholesale trade increased 3.2 per cent and retail activity was up 1.6 per cent.

However, activity in producing industries was virtually unchanged and manufacturing activity flat. Electricity, gas and water production rose 3 per cent in the quarter.

Construction activity fell 2 per cent in the quarter. Residential building activity fell off a high in September but for the year was up 13 per cent.

Activity in primary industries fell 2 per cent. Agriculture production rose 0.3 per cent mainly due to the 1.3 per cent rise in dairy production. Production in the forestry and mining sector fell 6.9 per cent, reflecting falls in log exports.

UBS chief economist Robin Clements, who had forecast a quarter rise of 0.5 per cent, said the growth was suggestive of a slowdown towards the end of last year. "Which is consistent with the mixed data we've been seeing -- building activity had slumped, net exports were likely to be negative -- and it's those sorts of things that if we extend into this year could make for a fairly soft year."

Stephen Toplis, BNZ's head of market economics, said the key message was that it showed the economy was in slowdown mode.

"We've come from seeing quarterly growth rates in excess of one per cent...to this, and we think it's a sign of things to come.

"It's clearly below the central bank's view of where the world is going...they were expecting a number around 0.9 per cent or one per cent, which would have been another quarter of above trend growth.

"The implication is when they (the Reserve Bank) run their models of the output gap that there's a little less pressure on capacity than they had originally anticipated, so clearly the pressure for rate increases diminishes."

- NZPA