Fall in GDP expected after economy skirts recession

The September earthquake in Christchurch created a drag on growth in the December quarter. Photo / Mark Mitchell

The economy eked out growth of 0.2 per cent in the last three months of 2010, enough to reverse the September quarter's decline and avoid a technical recession.

But output grew just 0.8 per cent during the year and almost all that growth happened a full year ago. The last three quarters of 2010 saw the economy expand a cumulative and mere 0.1 per cent.

In per capita terms, output is 5 per cent lower than it was at the pre-crisis peak three years ago.

By the end of last year, economic output had recovered only half the drop that occurred during the 2008/09 recession.

Compared to previous recoveries this was very poor, ANZ economist Sharon Zollner said.

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

The earthquake a month ago had cancelled out signs of a burgeoning recovery early in the year.

"We're now looking at a March quarter fall in GDP.

"We expect activity to recover somewhat in the June quarter, but avoiding a recession in 2011 still looks a close call."

Bank of New Zealand head of research Stephen Toplis said the overall GDP reading showed that economies could keep growing even in the face of localised disasters.

"When you consider that in the December quarter, the country was still suffering global demand uncertainties, increasing household savings and post-earthquake disruption, it's perhaps remarkable the out-turn was as strong as it was," Toplis said.

"Sure, the February event was much more extreme and will have a much more negative short-term impact on growth.

"But we still stick to our guns that the economy will find a way to scramble through the mess."

Deutsche Bank chief economist Darren Gibbs expects the March quarter to record a modest contraction, with growth elsewhere offset by the hit to activity in Christchurch.

"However, like most other commentators, we're optimistic that modest growth will resume in the June quarter and then strengthen in the second half of this year, supported by the slightly easier monetary policy settings now in place, strong trading partner growth, the gradual flow-through to incomes from stronger terms of trade, the early stages of activity associated with reconstruction in Canterbury, and activity associated with the Rugby World Cup."

The 0.2 per cent growth recorded for the December quarter matched the median forecast among market economists.

Agricultural output continued its year-long decline, shrinking 0.5 per cent, with a fall in milk production only partially offset by an increase in wool production.

But forestry activity was up 6.6 per cent, driven by export demand.

Manufacturing activity was up 2.5 per cent for the quarter but still down 1.3 per cent for the year and 12 per cent below its level three years ago.

Construction was up 1.5 per cent, reversing half the preceding quarter's decline. The increase was in non-residential building and infrastructure; residential construction dropped.

The services sectors, which represent more than two-thirds of economic activity, were flat overall - their weakest performance for two years - driven by a 2.1 per cent decline in the retailing, accommodation and restaurants sector.

On the expenditure side, household consumption rose 0.2 per cent. Investment spending, by contrast, rose 4.8 per cent overall despite less investment in plant, machinery and equipment (down 1 per cent) and residential buildings (down 7 per cent).

The main upward contributor was spending on transport equipment, reflecting lumpy imports of ships and aircraft. Infrastructure spending was up 6 per cent and non-residential buildings an eyebrow-raising 17 per cent.

Net exports were negative, with export volumes up 2.1 per cent but import volumes up 6.6 per cent.

THE NUMBERS

* 0.2pc how much the economy grew in the December quarter

* 0.8pc how much it grew over the whole of 2010

* 50pc how much of the recession's decline in the level of economic activity has since been clawed back

* 5pc the drop in output per Kiwi compared with three years ago