Economy grew 0.4pc in December quarter, 4.8pc in 2004

The economy grew a moderate 0.4 per cent in the fourth quarter of 2004, down from 0.6 per cent in the September quarter, Statistics New Zealand figures showed today.

The seasonally and inflation adjusted growth rate in the December year was 4.8 per cent, up from 3.4 per cent the previous year.

The quarterly figure was below the 0.6 per cent growth median forecast by economists.

SNZ said both internal and external demand contributed to the modest quarterly growth. Internal demand was up 0.3 per cent, mainly due to higher levels of both household and government spending.

Growth in household consumption expenditure rose 0.7 per cent in the December quarter, adding to the 1.7 per cent increase in the September quarter.

Household spending on services rose 0.5 per cent, with spending on durable goods up 0.5 per cent, driven mainly by demand for furniture and household appliances.

Household spending on non-durable goods fell 0.7 per cent in the quarter.

Investment in new housing continued to fall, down 3.9 per cent, on top of the 7 per cent fall the previous quarter. But on an annual basis, new housing investment was up 4.5 per cent for the December year.

General government spending rose 5.4 per cent in the December quarter, and was up 8.4 per cent on the December 2003 quarter.

SNZ said much of the Government spending in the last few quarters was due to the purchase of a number of light armoured vehicle (LAVs) by the New Zealand Defence Force. Excluding the LAV purchases, Government spending was up 2 per cent for the quarter.

Exports rose 4.9 per cent in the December quarter, and were up 5.2 per cent for the December year.

Growth in exports was mainly driven by higher exports of dairy products, up 29.2 per cent. Other food and beverages rose 17.3 per cent, while exports of machinery and transport equipment were up 9.9 per cent.

Exports of meat and meat products fell for the third consecutive quarter, down 2.7 per cent, but were up 4.4 per cent for the December year.

Exports of services fell 2.8 per cent in the quarter, reflecting a fall in inbound tourists. But on an annual basis, exports of services rose 5.8 per cent, largely due to a rise in tourism spending.

Import volumes for the quarter rose 3.5 per cent, with the LAV imports playing a major role in the rise. Service industries also drove growth, up 1.3 per cent.

All service industry groups showed increased activity for the quarter. Activity in primary industries rose 0.9 per cent in the quarter, and was up 1.4 per cent for the year.

Agriculture production rose 0.4 per cent for the quarter, following a 0.3 per cent fall in the September quarter. The main increases were in cattle and lamb production, which were offset by decreases in wool and dairy production. Fishing, forestry and mining activity increased 2.3 per cent for the quarter, but fell 2.1 per cent for the year. Fishing activity rose 9.6 per cent, following falls in the previous two quarters.

Activity in goods producing industries fell 1.1 per cent for the quarter, but was up 5.1 per cent for the year.

By contrast, activity in goods-producing industries fell 1.1 per cent for the quarter. A fall in residential building construction contributed to a 2.2 per cent fall in construction activity for the quarter.

GDP per capita increased 3.4 per cent for the year. Goldman Sachs JBWere economist Bernard Doyle said today's figure confirmed the economy was slowing.

"Even if we had a rebound in March, I think the trend is clear that growth probably peaked about the middle of last year and is gradually slowing."

"I think the second quite important conclusion is that it kind of undermines the case for a tightening in April and suggests the Reserve Bank should watch and wait for at least another couple of months before considering further tightening."

UBS chief economist Robin Clements noted the quarterly growth was well below the Reserve Bank's prediction of 1.1 per cent. He agreed that interest rate hikes could be put on hold.

"I think it's certainly good fodder for the argument that the economy has slowed past the turning point if you like, to use RB terminology, and certainly starting to make the case for the Bank to stay on hold from here."

The RB raised interest rates on March 10 for the seventh time in a year and threatened at least one more rate rise to quell inflation from a heated domestic economy, despite acknowledging the economy was starting to turn down.

The kiwi dollar continued to slide after the announcement. It was down to US71.60c from its US71.73c opening today, which in turn was down over US1c on yesterday's close.

- NZPA