Economy rebound stronger than forecast

By BRIAN FALLOW

The economy rebounded with a vengeance in the September quarter, propelled to 1.5 per cent growth by strong household spending and residential building.

A bounceback from the weak June quarter was expected, but the figure bettered economists' average forecast of 1.1 per cent.

It was strong enough, together with upward revisions to previous quarters, to keep annual average growth at 3.9 per cent compared with 4.2 per cent in the June quarter.

The importance of migration and population growth in fuelling activity is evident in the figure for per capita growth. It fell to 2.1 per cent on an annual basis, continuing 2003's declining trend.

But migration figures from Statistics New Zealand yesterday suggest that that underpinning of economic growth is weakening.

Permanent and long-term immigrants exceeded emigrants by 1020 last month, seasonally adjusted, down from 1890 in October and a peak of 3680 in May. The annual tally is also declining: 36,000 for the year ended November, down from a peak of 42,500 in mid-year.

Household spending rose 2.4 per cent in the September quarter to be up 5.1 per cent for the year. Spending on durable goods such as cars, furniture and major appliances was particularly strong.

Residential construction increased 4 per cent, capping off 20 per cent growth for the year.

Business investment in fixed assets rose 2.9 per cent for the quarter, making 9 per cent for the year. Within that, investment in plant and machinery increased almost 10 per cent over the year.

On the supply side of the ledger, growth was recorded in every sector except forestry.

Manufacturing rebounded from the June quarter's decline to post a 1.9 per cent increase.

The overall 1.5 per cent increase was well above the 1 per cent forecast by the Reserve Bank, leading economists at Westpac and ASB to conclude that it is highly likely the bank will start to raise interest rates at the next opportunity, January 29.

But Bank of New Zealand economist Craig Ebert notes that much of the September quarter's surge was catch-up from the June quarter, when growth was trimmed to 0.3 per cent by the electricity crisis and Sars.

Averaging the two quarters gives a rate of 0.9 per net a quarter.

While that is still above the trend and implies continued inflationary pressure on resources, it is slower than in previous quarters, while leading indicators like the slowing net inflow of migrants suggest that a further slowdown lies ahead.