Economic growth and industry
Updated: 21 November 2009
Economic activity flat, timing and sustainability of recovery uncertain as economy remains vulnerable.
Production-based gross domestic product (GDP) was flat in the June 2009 quarter increasing by 0.1 percent, having fallen for five consecutive quarters. However, annual growth continues to decline, falling by 2.1 percent in the year to June 2009, and by 2.6 percent in the year to March 2009, the largest annual contraction since the series began in June 1987.
Annual growth in the construction industry continues to decrease for the sixth consecutive quarter, falling by 6.9 percent in the year to June 2009. On a quarterly basis, activity has contracted in five of the previous six quarters. Following an increase of 0.4 percent in the March 2009 quarter, activity in the construction industry contracted by 1.9 percent in the June 2009 quarter.
The decline in construction activity continues to be driven by weakness in the residential building sector. Gross fixed capital formation in residential building has experienced double-digit rates of contraction for five consecutive quarters, falling by 22.3 percent in the year to June 2009, 27.8 percent in the year to March 2009, and by 31.0 percent in the year to December 2008. However, robust growth in non-building construction has tempered its impact on the construction industry as a whole.
In its September 2009 Monetary Policy Statement (MPS), the Reserve Bank expressed cautious optimism regarding the timing of a recovery compared with their previous reports. They base their revisions on signs of increased activity in the housing sector, as well as indications of an imminent recovery in several of New Zealand’s trading partners in Asia. They express some confidence of a recovery occurring in the coming quarters, albeit at a sluggish pace.
They revised their forecast up slightly for real residential investment for 2009 from -26.8 percent in the Reserve Bank June MPS to -22.9 percent, and from -23.0 percent to -14.3 percent for 2010. They expect output will begin increasing in June 2010 at an annual rate of 0.3 percent, which is earlier and slightly lower than their June MPS forecast, which predicted a return to positive growth in September 2010 of 1.2 percent.
The NZIER expect positive growth from the December 2009 quarter, but negative growth on an annual basis, predicting a fall in GDP of 1.8 percent for the year to March 2010. They expected activity to rebound in 2011 to 3.0 percent, though they remain cautious in terms of both the speed and sustainability of the recovery.
Infometrics revised their forecast for economic growth up to 3.3 percent for 2010/11 in their November 2009 forecasts, based on stronger expectations for a pick-up in household consumption. A recovery in the housing market, together with lower interest rates, steady petrol prices and greater external demand within the Asia-Pacific region are expected to accelerate growth further to 4.2 percent by March 2012. They also expect the stronger dollar to further benefit households by keeping the cost of imported goods down.
Figure 1: Aggregate and Construction Industry Growth (to June 2009)
Source: Reserve Bank and Statistics New Zealand
Migration to New Zealand continued to climb steadily with a net inflow of 17,043 people in the year to September 2009, almost four times higher than the 4,403 recorded for September 2008. The increase was largely due to a reduction in numbers leaving New Zealand (falling 14.7 percent compared with a year ago), while immigration flattened following a sustained increase in recent years.
Figure 2: Net Migration (to September 2009)
Source: Reserve Bank and Statistics New Zealand