Weak growth rate continues to languish

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Economic growth in the September quarter, due to be reported on Thursday, is expected to do no more than match the previous quarter's feeble rate.

A Reuters poll of 15 forecasters found the average pick for gross domestic product growth in the quarter is 0.2 per cent.

If so that would just bring the level of economic activity back to its pre-crisis peak in December 2007 and in per capita terms it would be flat at best.

Agricultural output is expected to record an increase from the drought-affected levels of the June quarter but that will be offset by a grim spring in the south.

"However, the Economic Survey of Manufacturing made it very clear that outside of agriculture-related production, New Zealand's manufacturing industries are struggling," Westpac economist Dominick Stephens said.

"Non-agricultural manufacturing volumes fell sharply for a second consecutive quarter, with the exchange rate no doubt playing an important role."

ASB economist Jane Turner said mining activity was also weak, as were forest export volumes, indicating the production activity in the forestry sector may have also declined.

The construction sector had a horrible quarter, Stephens said.

"Residential construction dropped back 5 per cent from the strong gain in early 2010, while non-residential work is still tailing off after the 2009 recession." With construction and manufacturing struggling, services have lately represented about 70 per cent of production GDP.

But with activity in the housing market declining 10 per cent in the quarter and household credit growth almost imperceptible (household debt increased just 0.3 per cent in the September quarter) little if any growth is expected in the estate and financial services sectors.

Retail sales volumes, excluding the volatile automotive sector, grew 0.9 per cent in the quarter, but that only matched the June quarter's increase and benefited to some degree from consumers bringing forward purchases ahead of the GST increase on October 1.

Both Stephens and Turner see communications activity as a wild card in the GDP statistics.

For the last three quarters Statistics New Zealand has reported large declines in that sector, which is considered implausible and suggests there are measurement problems.

"Communications was the strongest growing industry for decades, averaging 2.2 per cent growth per quarter in the 20 years to March 2008," Stephens said.

Turner said that as the communications sector accounts for about 6 per cent of GDP, measurement issues affecting it were not trivial.

Even if the true activity levels in the sector were no more than flat it would mean that GDP was being understated by up to 0.2 per cent a quarter, she said, and more if the sector was growing.

Cumulative economic growth of just 0.4 percentage over six months would be seen as weak for an economy recovering from a deep recession, with a corresponding amount of spare capacity, and supported by export commodity prices close to their all-time highs, low interest rates and heavy deficit spending by the Government.

But Turner said looking forward to 2011 the fundamentals remained in place for the recovery to pick up momentum.

Post-earthquake reconstruction work would boost the building sector and the weakness in manufacturing activity should be temporary given robust growth in at least some of New Zealand's trading partners and a favourable exchange rate with Australia.