Brian Fallow

The Economics Editor of the NZ Herald

GDP growth has likely slowed

Westpac's bottom-of-the-range forecast of a flat GDP in the September quarter is predicated on widespread weakness in the service sectors. Photo / Thinkstock
Westpac's bottom-of-the-range forecast of a flat GDP in the September quarter is predicated on widespread weakness in the service sectors. Photo / Thinkstock

A slowdown from the first half of the year is expected when economic growth figures for the September quarter come out on Thursday.

The median pick among nine private sector forecasters polled by Reuters is for a 0.5 per cent increase in gross domestic product, which would make 2.3 per cent for the year but represent a deceleration from the average 0.8 per cent in the March and June quarters. The Reserve Bank's forecast is 0.2 per cent.

ASB economists, whose forecast of 0.6 per cent is at the high end of the range, emphasise the surge in construction activity and its spillover to other sectors like manufacturing.

Westpac economists, by contrast, are picking zero growth overall because of pervasive weakness in services, which make up around 60 per cent of economic activity.

ASB estimates residential construction in Canterbury rose 26 per cent in the quarter, on top of a 28 per cent rise in the June quarter.

It also points to a lift in building consents issuance in Auckland as the surge in prices for existing properties spurs more construction. This should help alleviate the acute housing supply constraints in the region, although the full effects were likely to take a year to flow through, ASB chief economist Nick Tuffley said.

Although construction represents less than 5 per cent of GDP, much of the output of the manufacturing sector is sold to the construction sector, implying a spillover boost there.

Offsetting that, however, will be a slowdown in activity in dairy factories and meat works associated with exceptionally good growing conditions last season.

ASB expects the net effect of the more construction-related output and an easing in food manufacturing would be to leave manufacturing activity broadly unchanged.

Westpac's bottom-of-the-range forecast of a flat GDP in the September quarter is predicated on widespread weakness in the service sectors.

Retail sales fell 0.4 per cent in volume terms in the quarter.

ANZ's Truckometer indicator recorded slightly less heavy vehicle traffic in the September quarter than in the June quarter.

Statistics New Zealand's quarterly employment survey showed a drop in hours worked across a range of business services, Westpac economist Michael Gordon said, while the BNZ-Business New Zealand performance of services index was softer.

The service sectors tend to be under-represented in monthly economic data, considering that they make up about 60 per cent of the economy, Gordon said.

"They accounted for a major part of the strong GDP growth in the first half of this year. We suspect that their reversal of fortunes in the September quarter has gone under the market's radar to some degree."

- NZ Herald

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