Economy grows 4.3 per cent in March year

By SIMON LOUISSON

The economy expanded 0.6 per cent in the March quarter to give New Zealand a very respectable 4.3 per cent growth rate in the March year, Statistics New Zealand said today.

Growth in the December and September quarters had been 0.8 per cent and 0.9 per cent respectively.

The 0.6 per cent rise was bang on economists' forecasts.

New Zealand's rate was slightly below Australia's 0.7 per cent March quarter rate. Growth across the OECD group of wealthy nations was 2.0 per cent over the March year.

While New Zealand's GDP growth rate compares well in the western world over the period, it was boosted by migration.

On a per capita basis growth was only 2.7 per cent in the March year, which compares to 2.9 per cent in the December year and 2.6 per cent in the March 2002 year.

SNZ said the external sector was the key contributor to the quarterly growth with exports rising 1.6 per cent and imports declining 0.7 per cent.

Meat export volumes soared 12.1 per cent to record levels. Dairy exports fell 4.0 per cent but remained a high levels, up nearly 20 per cent for the year.

Imports of goods rose 0.3 per cent in the quarter while imports of services fell 2.9 per cent.

Internal demand was flat, down 0.2 per cent in the quarter although it remains buoyant over the year -- up 4.5 per cent.

There was a 0.5 per cent lift in household spending. Car buying was up as was spending on food and beverages and domestic travel.

Offsetting these was lower spending by kiwis travelling overseas.

Investment in new housing increased for the fourth consecutive quarter, up 4.2 per cent. It was up 23.3 per cent over the March year.

Business was flat in the quarter but up 3.7 per cent for the year. There was a slight run-down in inventory levels. The most significant contribution to growth occurred in the service industries which rose 0.9 per cent in the quarter and 3.7 per cent in the year. The finance, insurance and business sectors were the main contributors while transport and communication activity was up 1.3 per cent.

Manufacturing activity rose 2.0 per cent in the quarter with the lift in food, beverage and tobacco manufacturing offsetting declines in petroleum, chemical, plastic and rubber products manufacturing.

Drier than normal weather saw agricultural activity fall 0.8 per cent. Dairy production tailed off earlier than normal and livestock production declined as some farmers quit stock earlier than usual. This was reflected in increased meat slaughtering recorded in manufacturing.

The March quarter growth is expected to be the peak in the current business cycle. The Reserve Bank and other economists believe the economy contracted during this quarter although most economists believe it will revive in the second half of this year.

The National Bank's monthly survey of business confidence out today showed confidence improved as fears about war, severe acute respiratory syndrome (Sars) and the power crisis have abated.

The survey showed a net 34 per cent of respondents expected general business conditions to deteriorate in the coming year compared with 44 per cent the previous month.

Finance Minister Michael Cullen said yesterday the survey indicated that even if the economy did contract in the June quarter, it would be "shallow and short". Evidence still pointed to slow growth over the next two quarters, he said.

Westpac economist Nick Tuffley said today's figure was slightly better than expected with the domestic sector holding up well.

However, there were some timing issues such as the culling of stock which would unwind during the second quarter. He is predicting a flat quarter thanks to the influence of Sars on tourism and electricity shortages.

Today's figures had limited implications for the Reserve Bank which had forecast 0.8 per cent growth in the June quarter, he said.

"Further rate cuts are still very much on the agenda," said Mr Tuffley who is forecasting a quarter percentage point cut in July and another in September to take the cash rate to 4.75 per cent.

- NZPA