GDP shrank 0.2pc in third quarter

File photo / Glenn Jeffrey

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, target="_blank">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," Rachel Milicich, Statistics NZ national accounts manager, said in a statement.

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. Earlier this month, 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.

Today'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's 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. Still, the data doesn't take into account the government's hike in goods and services tax from Oct. 1, which saw a drop-off in demand for big-ticket items.

Inventories grew $82 million in the September quarter, turning around a $657 million rundown in June, which was revised up from a $530 million rundown in the last release. Manufacturing led the decline, as it wound down $561 million worth of stock. Statistics NZ said the 7.1 magnitude Canterbury earthquake caused significant damage in shops and warehouses, and officials made a $150 million adjustment to distribution inventories which would otherwise have been treated as a rundown.

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 compared to 0.5 per cent growth in private consumption expenditure, the first time public spending growth lagged private sector since the December 2009 quarter.