Economic growth more subdued than expected

Official figures out today show the New Zealand economy expanded at a subdued clip in the September quarter.

However, with household and business spending still strong, the Reserve Bank will need to keep a hawkish eye on inflation when it meets to decide on interest rates next month.

Gross Domestic Product (GDP) figures, released by Statistics New Zealand, showed the economy grew by just 0.2 per cent in the September quarter, half the rate expected by economists, and well down on the June quarter's revised 1.2 per cent tally.

On an annual basis, GDP grew by 2.7 per cent, slightly bettering average economists' forecasts of 2.6 per cent, but below the June quarter growth rate of 3.1 per cent.

The figures showed household spending remained buoyant, rising 1 per cent during the quarter, and 5.3 per cent for the year, while business spending on plant, machinery, equipment and infrastructure, rose 2.2 per cent and 6.9 per cent, respectively.

Retail trade was also strong, rising 1.6 per cent in the quarter and 5.8 per cent for the year.

Import volumes rose 2.4 per cent in the September quarter and 10.1 per cent for the year, reflecting the high level of internal demand, SNZ said.

That rise was offset by lower export volumes, which fell 1.5 per cent in the quarter, and posted a modest 1.1 per cent annual rise.

Merchandise exports decreased 2.9 per cent in the quarter. Dairy exports were the biggest culprit, sliding 12 per cent in the September quarter and 9.5 per cent for the year.

Construction also fell sharply in the quarter, down 4.6 per cent. Residential building investment fell 5.6 per cent in the quarter, while investment in non-residential buildings decreased 7.5 per cent.

On an annual basis, construction activity rose 2.7 per cent -- well below the 8.4 per cent recorded in the previous September year, and the 16.9 per cent recorded in the year to September 2003.

SNZ said that from an industry perspective, economic growth in the quarter was led by the service sector.

Activity in the service sector rose 0.7 per cent in the September quarter, and 4.1 per cent for the September year.

- NZPA