The New Zealand economy grew at a slower pace than expected in the September quarter as increased building activity provided a buffer from deteriorating mining, agricultural and manufacturing sectors.

The kiwi dollar fell on the report.

Gross domestic product grew 0.2 per cent to $36.28 billion in the three months ended September 30, from a 0.3 per cent pace in the June quarter, a revision from the previously published 0.6 per cent, according to Statistics New Zealand. That was short of the 0.4 per cent growth economists surveyed by Reuters were picking, though in line with Reserve Bank forecasts.

The economy grew at an annual pace of 2.5 per cent, and was 2 per cent higher than the same quarter a year earlier. Revisions to previous quarters showed New Zealand dipped back into recession in the second half of 2010, with two 0.3 per cent contractions in each quarter.


The New Zealand dollar dropped to 83.33 US cents after the figures were released, from 83.60 cents immediately before.

Construction kept the economy ticking over with a 4.5 per cent expansion, contributing 0.2 of percentage point to overall GDP. Electricity, gas, water and waste services grew 4.4 per cent in the quarter, contributing 0.1 of a percentage point in growth to GDP, underpinned by an increase in hydroelectric generation.

"Residential and non-residential building activities were both up strongly this quarter, and both were boosted by Canterbury," Statistics NZ said in its report. "The upper North Island also contributed to the growth in residential building activity."

The Canterbury rebuild, which is expected to top $30 billion, is widely seen as the saving grace for an economy that has struggled to recover from its deepest recession in two decades, and has been getting some help from a resurgent property market in Auckland in recent months.

Contractions in mining, agriculture, forestry and fishing, and manufacturing pulled down overall GDP by 0.4 of a percentage point.

Westpac Bank economist Michael Gordon said the result was softer than the median market forecast, reinforced by the downward revisions to the previous two quarters.

But since it was much in line with Treasury and Reserve Bank forecasts, it "certainly fits with the widespread view that Q3 will mark the low point in growth for the year."

Gordon said that if he was "to take a positive spin on these figures, it would be that the revisions to GDP measurement have made growth quite a bit more cyclical than we previously thought".


"If +0.2 per cent a quarter is the lowest that it gets, that bodes well for some strong recorded growth in coming quarters as the Christchurch rebuild gathers pace."

Agriculture, forestry and fishing shrank 2.1 per cent in the quarter, with falling dairy production and weak forestry exports dragging down the primary sector. Mining activity shrank 7.4 per cent due to lower oil and gas extraction.

New Zealand's manufacturing sector, the country's biggest industry, shrank 1.1 per cent in the quarter - a period in which private sector reports had found the sector to be struggling.

The transport, postal and warehousing sector shrank 1.6 per cent in the quarter, driven by declining road and air transport services, while retail, accommodation and restaurants shrank 0.8 per cent led by the hospitality sector.

A 0.9 per cent expansion in financial and insurance services from increased banking and financing services, and a 0.6 per cent increase in health care and social assistance activity from higher public health services helped keep the services sector flat in the quarter.

The expenditure measure of GDP, which measures the final purchases of locally produced goods and services, grew 0.2 per cent in the quarter, missing the 0.5 per cent expected by economists. GDP expenditure grew at an annual pace of 2.6 per cent.


Household consumption was flat in the quarter, while gross fixed capital formation shrank 1.8 per cent. Business investment, which excludes residential housing, declined 4.7 per cent with falling investment in plant, machinery and equipment.

Inventories were run down by $741 million, led by the manufacturing and agricultural sectors, following on from a $114 million rundown in the June quarter. Inventories have been built up by $1.58 billion on an annual basis.