NZ economy expanded 0.7pc in March quarter

New Zealand Gross Domestic Product (GDP) grew 0.7 per cent in the March quarter, in line with economists' predictions and an improvement on the 0.1 per cent decrease of the December quarter, Statistics New Zealand (SNZ) figures published today show.

For the year to March, GDP grew 2.2 per cent, down from 3.7 per cent growth in the year to March 2005.

A Reuters poll of economists had shown a range of expectations between 0.2 per cent and 0.9 per cent for the quarter, with a median figure of 0.7 per cent.

The outcome was slightly stronger than predicted by the Reserve Bank, which had expected 0.5 per cent growth for the quarter and 2.1 per cent for the year.

Service industries were the most significant contributors to growth, up 0.9 per cent in the March quarter, reflecting continued growth in household spending coupled with strong growth in central government activity, SNZ said.

Household spending was up 0.8 per cent in the quarter, following a 0.6 per cent rise in the December quarter.

For the year it grew 4.2 per cent, down from 5.8 per cent in the previous March year.

The household spending and a build-up in inventories, following a decrease in inventories in the previous quarter, contributed to an increase of internal demand of 1.2 per cent for the quarter.

The increase in internal demand was partially offset by a fall in the external account, with export volumes down 2.6 per cent, outweighing a 0.8 per cent reduction in import volumes.

Within the service industries the largest contributor to the increase were the finance, insurance and business services group, up 0.7 per cent, and personal and community services, up 1.5 per cent.

Government administration and defence recorded its 18th consecutive quarter of growth, rising 3.2 per cent for the quarter and 9.3 per cent for the year.

Manufacturing activity was up 0.3 per cent following two consecutive quarterly decreases, while construction activity increased 1.7 per cent, mainly driven by non-residential work.

Primary and goods-producing industries rose 1.3 per cent and 0.5 per cent respectively, SNZ said.

Business investment in fixed assets decreased 1.4 per cent in the March quarter, following a 0.3 per cent fall in the December quarter, but in the year ended March business investment was up 9.1 per cent.

Goldman Sachs JBWere economist Shamubeel Eaqub said the larger fall in exports than imports would, at the margin, add support to the Reserve Bank's view that interest rates be maintained at the current tight level.

While overall momentum in domestic economic activity was broadly trending down, there were some pockets of strength, he said.

A 6.4 per cent quarterly surge in non-residential building construction and the ongoing household consumption expansion were the major drivers.

Citigroup senior economist Annette Beacher said risks were increasing that a cycle of interest rate easing would be delayed until the middle of next year, although confirmation of that view would come from June quarter inflation figures.

While domestic demand had rebounded from the flat December quarter, exports had performed poorly - Citigroup assumed for the last time - while the drop in imports was surprising.

- NZPA