Steady quarter tipped for GDP

By Brian Fallow

Agricultural output over the last three months of 2011 will have been boosted by very good growing conditions. Photo / Thinkstock
Agricultural output over the last three months of 2011 will have been boosted by very good growing conditions. Photo / Thinkstock

Slower but still respectable economic growth is expected when December quarter gross domestic product numbers are released this week.

The median forecast among market economists is 0.6 per cent, with a range from 0.3 to 0.8 per cent. The Reserve Bank is also looking for 0.6 per cent.

It would push annual average growth up from 1.3 to 1.6 per cent.

"It's a pace that would be the envy of many developed economies at the moment, though not particularly remarkable in its own right," Westpac economist Michael Gordon said.

The September quarter recorded quarterly growth of 0.8 per cent, the highest-equal rate for four years.

Agricultural output over the last three months of 2011 will have been boosted by very good growing conditions.

But while that would lift dairy production it would mean less activity in meatworks as farmers held back stock to take advantage of the extra grass.

Manufacturing generally is expected to be a weak spot.

The most recent BNZ-Business New Zealand PMI, a barometer of the sector, was up strongly, but it was for February and contrasted with contractionary readings during the December quarter.

Statistics NZ's quarterly survey of manufacturing recorded a moderate 1.3 per cent increase in sales volumes in the December quarter. "We suspect this came out of inventory and production actually fell," BNZ economist Doug Steel said.

Manufacturing has been in the doldrums for some time. Manufacturing output fell 20 per cent in real terms from its peak in mid-2005 to a trough in mid-2009. The recovery since then has been modest and only taken the level of activity back to where it was at the start of the millennium.

Another sector bearing the brunt of the recession, construction, is expected to have rebounded in the December quarter after a cumulative 10 per cent decline over the previous three quarters.

"We expect the largest positive contribution to come from finance, property and business services, a wide-ranging category that accounts for nearly 30 per cent off GDP," Westpac's Gordon said.

Employment rose strongly in those areas, he said, and sales of houses and farms picked up after a subdued September quarter.

Retailing activity will have been boosted by the Rugby World Cup.

ASB economist Christina Leung said international visitor spending was measured through an exit survey as tourists left the country.

"Most of the visitors here for the Rugby World Cup are likely to have stayed until October or later. This means the majority of World Cup visitor spending is likely to be recorded in the December quarter rather than September."

As for the outlook for the next couple of years, Gordon said there was a notable three-way divergence of opinion.

Financial markets had priced in a low growth, low inflation scenario, while private sector economists expected higher growth and inflation but the Reserve Bank forecast higher growth but low inflation.

Thursday's GDP data was unlikely to resolve the issue, he said. "At its heart, the dispute is about the economic impact of the impending rebuild in Canterbury, which is more of a question for 2013 and beyond."

- NZ Herald

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