GDP rise kept in check by power crisis

By BRIAN FALLOW economics editor

Electricity and manufacturing were the teeth missing from the economy's smile as growth slowed in the September quarter.

Gross domestic product increased 0.2 per cent in the quarter, Statistics New Zealand said, which was in line with market expectations.

Combined with 0.5 percentage points-worth of downward revisions to the previous three quarters, the effect is a fall in the annual average growth rate to 2.1 per cent from 2.3 per cent in June and a peak of 5.2 per cent in the middle of last year.

Electricity generation was hit by the winter power crisis.

Not only was the amount of electricity generated down 3.2 per cent on the June quarter, the switch from hydro to thermal generation reduced value added.

The electricity, gas and water sector contracted 8.6 per cent and reduced GDP by at least 0.2 per cent.

The power crisis also contributed to a 1.8 per cent drop in manufacturing activity.

By contrast the service industries, which account for two-thirds of economic activity, hummed along, especially transport and communications (up 3.1 per cent) and property and business services (up 1.7 per cent).

In the primary sector the main contributor was forestry with a 4.5 per cent rise in activity in the quarter.



Agriculture grew 0.7 per cent. Spring conditions were good, Statistics New Zealand said, but with sheep numbers down because of drought earlier in the year lamb births were little changed on last year.

Construction activity increased slightly (0.9 per cent), but is down 10 per cent for the year. Non-residential building was up 6.4 per cent on top of a 13.8 per cent rise in June. Residential construction was also up, but non-building construction, such as roads, was down.

On the demand side of the ledger household consumption did the heavy lifting. Household spending rose 0.5 per cent, following a rise of 0.7 per cent in the June quarter.

The main contributors were spending on durables (used car sales are near record highs), medical services, telecommunications and travel.

The unexpectedly strong level of consumer confidence in WestpacTrust's December survey suggests there is reasonable momentum still in private consumption.

Demand for new housing grew 2.9 per cent but business investment fell nearly 5 per cent, especially in computers, reversing some of the June quarter's 19 per cent surge.

Net exports were a drag on growth, with the double whammy of a 2.1 per cent fall in exports and 1.4 per cent growth in imports.

The 0.2 per cent out-turn for September GDP fell short of the 0.6 per cent the Reserve Bank forecast in the November monetary policy statement. But at that stage the bank was not expecting any growth in the December quarter, a view private sector forecasters now regard as too conservative.

Deutsche Bank chief economist Ulf Schoefisch said that the positive business and consumer confidence surveys of the past week and upward revisions to growth forecasts for Australia and the United States further reduced the probability of another interest rate cut.

WestpacTrust, on the other hand, says there is probably room to cut rates another 50 basis points next quarter.