NZ almost in recession as economy shrinks

New Zealand's economy contracted in the third quarter and growth in the second quarter was revised down to a wafer-thin 0.1 per cent, showing the nation came close to a double-dip recession this year.
Gross domestic product shrank 0.2 per cent in the three months ended September 30, according to Statistics New Zealand, compared to the 0.2 per cent growth predicted in a Reuters survey of economists and the 0.3 per cent forecast from the Reserve Bank. Growth in the second quarter was revised down from 0.2 per cent.
"The decline in GDP this quarter was due to weakness in the primary and goods-producing industries," said Rachel Milicich, Statistics NZ national accounts manager.
New Zealand's recovery nearly stalled in the second half this year, damping expectations of an aggressive bounce-back by policy makers and forcing central bank Governor Alan Bollard to back down on tighter monetary policy. This month, Mr Bollard reined in his forecast track of interest rate hikes as he held the official cash rate at a stimulatory 3 per cent after he hiked rates 50 basis points in the June and July meetings.
Yesterday's data follows a more benign balance of payments in the period, with the current account deficit coming in at 3.1 per cent of GDP, compared to the 3.4 per cent forecast. Reinsurance money to help pay for the rebuild of Canterbury underpinned the upbeat data, though merchandise trade was in surplus in the year ended September in its highest reading since March 2002.
The economy grew at an annual pace of 1.4 per cent, with 0.1 percentage point of growth being shifted from the 2009 December quarter into the 2010 March quarter, which outpaced the 1.2 per cent increase in the country's population.
Statistics NZ said the biggest drain on the economy was a slowdown in manufacturing and construction. Manufacturers, who have been hovering around expansion on the BNZ-Business NZ Performance of Manufacturing Index this year, reported a 1.7 per cent decline in the quarter, led by a 6.9 per cent fall in petroleum, chemical, plastic and rubber products, and a 4.2 per cent drop in machinery and equipment.
Construction fell 2.5 per cent in the period as the property market continues in its lull this year amid tepid demand for residential housing and tight access to credit for commercial property investors.
Westpac Banking Corp economists said before the release that construction "probably had a terrible quarter" and manufacturing industries were still "struggling".
Household consumption, which has been muted over the past year as people focus on repaying debt in a low interest rate environment, rose 0.5 per cent in the period, following a 0.1 per cent increase in the June quarter. At 1.8 per cent, that is the fastest annual growth since the year through June 2008.
Spending on durable goods climbed 0.9 per cent in its fifth consecutive gain, led by retail furniture and major appliances. The data does not take into account the Government's hike in goods and services tax from October 1, which led to a drop-off in demand for big-ticket items.
Export volumes shrank 1.1 per cent in the period, with a 17 per cent slump in meat products and a 6 per cent decline in dairy, ending two quarters of gains.
Primary industry growth fell 2.8 per cent in the three months through September, led by declines in fishing, forestry and mining activity. Government sector spending shrank 0.7 per cent in the quarter.