Economy grows better than expected in March quarter

By NZPA

Friday 25th June 2004

The economy grew an astounding 2.3% in the March quarter, fuelled by growth in the goods-producing industries, Statistics New Zealand said today.

The Gross Domestic Product (GDP) growth of 2.3% trounced economists' predictions of 1.6% growth for the three months ended March 31.

It followed a rise of 0.7% in the December quarter.

The big jump in the March quarter boosted the annual growth rate to 3.6% from 3.4% in calendar 2003.

Economists polled by Reuters had expected a rise of 3.5%.

The March quarter rise makes it a virtual certainty the Reserve Bank will lift interest rates twice more in the current tightening round.

The statistics, which were expressed in 1995/96 prices, showed growth in the imports sector outpaced that in the exports sector in the March quarter.

Government statistician Brian Pink said goods-producing industries contributed the most to economic growth in the March quarter, up 5.1%.

"Following a quarter of flat activity, manufacturing recovered this quarter, increasing 3.8%," Pink said.

"The increase in activity was widespread with most of the manufacturing industry groups recording rises," he said in a statement.

The main manufacturing increases were in machinery and equipment (up 7.8%), metal products (up 7.4%), and food, beverage and tobacco (up 3.9%).

The Statistics NZ figures showed import volumes were up 4.2% in the March quarter, slightly down on the December quarter's 5.1% rise.

Imported machinery and electrical equipment made the greatest contribution to the rise (up 9.7%), followed by non-food manufactures (up 8.9%), and merchandise (up 4.8%).

Imports of transport equipment fell 7.9% to 13.9%, while imports of services rose 5.0% to 9.7%.

"Decreased spending by New Zealanders travelling abroad in the March 2004 quarter was more than offset by lifts in other imported services," Pink said in a statement.

Meanwhile, export volumes were up 3.4%, but were only up 1.1% on the March 2003 quarter.

Export of seafood was up 10.4%, followed by meat products (up 4.5%), other food and beverage products (up 6.2%), and machinery and transport equipment (up 4.0%).

Dairy exports were up 0.2%, after their 23.1% rise in the December quarter.

"Exports of services declined 0.7%, reflecting the drop in in-bound tourism spending in the March 2004 quarter," Pink said.

The Statistics NZ figures also showed strong growth of 2.9% in household expenditure, from 1.7% in the three months to December 31.

"Household spending is now 7.0% higher than in the March 2003 quarter," Pink said.

Spending on durable goods was up 3.6%, compared with a rise of 3.2% in non-durable goods.

"Investment in new housing rose 9.8% this quarter, following a decline of 0.8% in the December 2003 quarter," Pink said.

Business investment in fixed assets was up 4.1%, while Government expenditure increased 2.2%.

Real gross national disposable income for the year ended March 31, 2004, grew 5.7% exceeding that of GDP.

UBS economist Robin Clements called the data "extremely strong".

"I guess a lot of the calculations looked as if there might be an upside risk on what was already a healthy forecast for 1.5%, and that's certainly proven to be the case.

"The problem now for thinking about the RBNZ is that on the face of it, it suggests the economy came into this year much more robust, and therefore the risk of more tightening is much greater.

"That said, we are seeing some signs that the housing market is past its peak, so we're still deliberating just how much further are rates likely to go up - definitely the risk's on the upside," Clements said.

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