Published 29 March 2010

Economic activity rises slightly…

Economic activity rose by 0.2% in the December 2010 quarter (see Figure 1), in line with market expectations of a relatively flat result. Despite the slight rise in economic activity, the result confirms that the economic recovery effectively stalled over the second half of 2010 as domestic demand remained subdued and business confidence softened. Figure 2 shows that real GDP has barely grown since the March 2010 quarter after trending upwards in late 2009 and early 2010.

Figure 1: Quarterly Economic Growth

Data table for Figure 1

Figure 2: Quarterley Real GDP

Data table for Figure 2

…led by increases in manufacturing and construction…

After strong declines in the previous two quarters, manufacturing activity rose by 2.5% in the December 2010 quarter and was the main contributor to the overall increase. Construction activity also rose strongly (up 1.5%), driven by strength in non-residential building and infrastructure construction. This was partly offset by a fall in investment in residential building. A 1.1% rise in personal & other services and a 0.9% increase in real estate & business services also contributed to growth.

Primary sector activity increased by 0.4% over the December 2010 quarter with forestry & logging activity up by 6.6% on the back of increased log exports. Partly offsetting this increase was a 0.5% fall in agriculture activity as dry conditions in many parts of New Zealand saw milk production decline.

…offset by falls in the wholesale, retail and hospitality industries…

Activity in the retail trade industry fell by 2.0% over the quarter, led by a decline in expenditure on durable goods. Although much of the decline is the result of a lull in activity following the rise in GST on October 1, consumer spending remains weak in general, as households remain cautious and continue to look to pay off debt or increase savings. This cautiousness also saw activity in the hospitality industry fall strongly, down 2.6% over the quarter. Other industries which experienced a decline over the December 2010 quarter were wholesale trade (down 2.7%), central government (down 0.9%), and transport & storage (down 0.4%).

…with economic activity expected to fall in the March 2011 quarter

Economic activity is expected to decline in the March 2011 quarter due to the disruptions caused from the February 22 earthquake in Canterbury. The average prediction in NZIER’s Consensus Forecasts is for the economy to contract by 0.2% in the March 2011 quarter with consumer spending, business activity, and tourism all likely to be severely affected. The impacts of the earthquake are expected to see growth remain relatively weak over much of 2011 which will result in the unemployment rate remaining elevated in the short-term. However, as the rebuild gets underway in 2012, employment is expected to rise strongly which will see the unemployment rate trend down.