Economy grows on service sector surge

Professional scientific and technical services grew by 3.3 per cent in the second quarter of this year. GDP on an annual basis was up to 3.3 per cent. Pictured - workers at the Waterview Connection motorway tunnel under Auckland. Photo / Jason Oxenham.

New Zealand's economy grew just ahead of expectations in the second three months of the year as the fastest growth in the services sector for seven-and-a-half years offset shrinking activity in the primary sector when global commodity prices were coming of highs.

Gross domestic product expanded 0.7 per cent in the three months ended June 30, ahead of the 0.6 per cent pace expected in a Reuters survey of economists, and slowing from the 1 per cent pace in the first quarter, according to Statistics New Zealand. The annual pace of economic growth accelerated to 3.5 per cent in the June quarter from 3.3 per cent in the March period, just below the 3.6 per cent pace predicted in the Reuters poll.

New Zealand's services sector, which accounts for about two-thirds of the economy, rose 1.4 per cent, the biggest gain since the December 2006 quarter, driven by a 3.3 per cent increase in professional scientific and technical services. Service industries grew 2.6 per cent on an annual basis, led by a 5.3 per cent increase in health care and social assistance.

"All 11 services industries increased this quarter," national accounts manager Gary Dunnet said in a statement. "The biggest increases were in industries that include advertising, employment services and software development."

The government data comes after a BNZ-BusinessNZ survey this week showed New Zealand's services sector activity continued to expand in August, extending its period of growth since July 2010. The performance of services index showed employment was at its highest level since the survey began in 2007.

Source: Statistics NZ

The gain in the local services sector offset a 3.1 per cent decline in primary industries, with agriculture, forestry and fishing down 2.8 per cent and mining activity shrinking 4.5 per cent. On an annual basis, primary industries production grew 4.4 per cent, led by a 5.9 per cent expansion in agriculture, forestry and fishing.

Construction grew 2.2 per cent in the quarter, for an annual expansion of 12 per cent, while manufacturing shrank 0.3 per cent in the quarter, with growth of 3.1 per cent in the year.

Last week Reserve Bank governor Graeme Wheeler said he expected the local economy remained supported by building activity, consumer spending and business investment, and expected annual growth of 3.7 per cent in calendar 2014.

Investment in residential property shrank 0.2 per cent in the June quarter, while non-residential investment grew 2.5 per cent and other construction, such as infrastructure and engineering, expanded 20 per cent. Investment in plant, machinery and equipment shrank 1.2 per cent, while transport equipment investment grew 9.9 per cent and intangible fixed assets expanded 6.2 per cent. Overall business investment grew 2.5 per cent in the quarter, for a 7.2 per cent annual growth.

On the expenditure measure of GDP, the economy grew 0.5 per cent, beating the Reuters poll estimate for 0.4 per cent, and expanded 2.7 per cent on an annual basis. Private consumption was up 1.2 per cent in the quarter, with household expenditure growing 1.3 per cent. Central government expenditure grew 0.3 per cent in the June quarter.

Real gross national disposable income, which measures the country's real purchasing power, shrank 0.5 per cent in the quarter, its first decline since June 2012, due to a fall in the services terms of trade. On an annual basis, the measure grew 7.8 per cent, the biggest annual increase since the series began in June 1987.

Read more from the latest GDP stats release here: