Recovery continues, but it's slow

By Brian Fallow

The manufacturing sector was the biggest contributor to the expanding economy. Photo / Dean Purcell
The manufacturing sector was the biggest contributor to the expanding economy. Photo / Dean Purcell

Gross domestic product grew 0.6 per cent in the first three months of the year but it was a two-speed economy, with growth concentrated in the export sector.

It followed growth of 0.9 per cent in the December 2009 quarter and means the economy has expanded 1.9 per cent over the past year.

By contrast, at this stage of the previous two recoveries the economy had expanded 7.3 per cent (in 1992/93) and 5.7 per cent (in 1998/99), Bank of New Zealand economist Craige Ebert said.

The biggest contributor was the manufacturing sector, which grew 1.6 per cent - weaker than the December quarter's 5.3 per cent but a contrast to the seven straight quarters of contraction which preceded that. Manufacturing activity remains well below the levels prevailing before the global financial crisis.

All of the primary sector grew, apart from fishing.

Forestry grew 5.3 per cent, reflecting strong export demand.

Mining grew 4.5 per cent as the Kupe field came into full production, although that was partly offset by declining production in all the other oil and gas fields, Statistics New Zealand said.

And despite drought in some regions agricultural activity grew 0.8 per cent.

But in the domestic sectors evidence of growth was scarce.

Construction, it is true, grew 1 per cent, up from just 0.1 per cent in the December quarter, but like manufacturing that followed seven quarters of contraction and activity remains well below pre-crisis levels.

The service sectors all shrank apart from wholesale trade and health.

On the expenditure side of the national accounts, household consumption managed only feeble growth of 0.2 per cent in the quarter, the weakest for a year. Spending on durable items was up, for the third quarter in a row, but spending on non-durables, especially food and petrol, fell.

Caution was also evident on the part of businesses. Investment in plant and machinery fell 0.3 per cent, having risen 4.1 per cent in the December quarter. Imports of capital goods also declined, with both transport and industrial equipment down, Statistics NZ said.

Investment in residential building failed to advance much on the December quarter's 4.7 per cent increase, growing just 0.5 per cent.

"The one export sector that fared poorly was tourism," Westpac economist Dominick Stephens said.

"Exports of services fell a whopping 2.4 per cent in the quarter. Visitor arrivals held up, but tourists appear to be spending less freely when they are here."

ANZ economist Mark Smith said the broad story formed by the GDP numbers was that the economy continued to recover but the speed of the recovery was more muted compared with previous cycles.

"We expect momentum to gather pace as record high commodity prices flow through into higher rural incomes, which in turn will lead to higher activity."

The outcome was weaker than the 0.8 per cent the Reserve Bank had forecast.

"However they will be pleased the income-generating side of the economy continues to lead the expansion and that consumers are remaining circumspect in their spending," Smith said.

THE ECONOMY
* 0.6 per cent growth in GDP for March quarter.
* 1.9 per cent growth in past year.
* 3.4 per cent contraction in GDP over the recession.

- NZ Herald

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