Sluggish GDP rise shows no rates rush

The real estate sector was among those driving growth. Photo / Greg Bowker

The economy continues to recover, though in a patchy and sluggish way, latest figures show.

Gross domestic product rose 0.2 per cent for the September quarter, Statistics New Zealand reported. It is less than the market and the Reserve Bank had expected but the June quarter's growth was revised up from 0.1 to 0.2 per cent.

Revisions to the historical data show the recession was deeper than previously thought, with a drop of 3.3 per cent in economic activity from the peak in the December 2007 quarter to the trough in the March quarter this year, instead of the 2.9 per cent reported three months ago.

It means the recession was worse than the average post-war slump (2.7 per cent) but not as bad the 1970s' 4 per cent.

"It will take another year to get back to where we started, even under relatively optimistic growth assumptions," said Bank of New Zealand head of research Stephen Toplis.

The weaker than expected out-turn for the September quarter and the revisions to the back data would not be enough to alter the Reserve Bank's view of the world, he said.

"More importantly, they do nothing to support the market's perception that the Reserve Bank will need to tighten much earlier and more aggressively than it suggested in the December monetary policy statement [around the middle of 2010]."

The sectors making the biggest contribution to growth in the quarter were real estate and business services, and mining, Statistics New Zealand said, while steep declines were reported in manufacturing and construction.

It was not so much real estate activity, which was more or less flat, but business services (a mixed bag which includes accountants and lawyers, pest controllers and cleaners) which expanded 2.2 per cent.

Mining activity was boosted both by the start of production from the Maari field and by more exploration.

But manufacturing had another grim quarter, down 1.9 per cent. Manufacturing activity is now back to 1999 levels, Statistics NZ said. It represents 13 per cent of the economy and has contracted almost 12 per cent over the past year, even though it includes dairy factories and meat works.

Construction activity declined 4.4 per cent in the quarter, bringing the cumulative fall since December 2007 to 19.2 per cent.

On the expenditure side of the books, private (mainly household) consumption rose 0.7 per cent in the quarter, its strongest quarterly performance since March 2007. It was driven by a 2 per cent jump in spending on durables, which includes domestic appliances, furniture and cars - the first increase since December 2007.

Business investment in plant and machinery fell 8 per cent, the fifth quarterly decline in a row.

Firms continued to run down inventories, though to a less dramatic extent than in the June quarter.

Deutsche Bank chief economist Darren Gibbs said the main thing he had been looking for from the data was confirmation that firms had made further progress in cutting excess stock levels in an environment where domestic demand was still weak.

Anecdotal evidence suggested retail spending had picked up smartly in December, Gibbs said. With domestic demand gradually strengthening and scope now to rebuild inventory levels, he expected to see growth strengthen notably over the coming quarters.

Gibbs expects December quarter growth to be 0.6 per cent, in line with the Reserve Bank's forecast.

Toplis also expects inventories to be rebuilt next year, together with a strong rebound in residential construction underpinned by a sharp rise in net immigration, higher house prices and lower average interest rates.

BNZ's estimate for the December quarter growth is 0.4 per cent.