NZ Growth Was Strong – But Big Slowdown Ahead

NZ Growth Was Strong – But Big Slowdown Ahead

WHAT HAPPENED?

Statistics NZ released data showing the NZ economy officially grew by 0.8% during the December quarter which is right on the long term average growth of 0.8% per quarter. In the entire 2002 year growth was 4.4% versus a ten year average of 3.5%. Growth was a below average 2.7% during 2001.

WHY DID THIS HAPPEN?

Strong growth over 2002 was mainly caused by booming house construction up 20.4%, spending by consumers on durable goods up 8.3%, and 6.6% growth in capital expenditure on plant, machinery & equipment. Export growth was strong at 7.6% but this was more than offset by import growth of 8.8%. Factors driving the stronger than average growth included

surging inward migration, below average interest rates, feed-through of record farm incomes, upturn in the housing cycle.

The easing of growth to 0.8% in the December quarter and 0.9% the previous quarter from 1.7% in the June quarter partly reflected lower wood processing and machinery manufacturing.

WHO IS AFFECTED AND HOW?

Hardly anyone directly because these data are so out of date – some 4.5 months from the quarter mid-point of mid-November. The focus of us economists is on leading indicators like confidence measures plus more up to date measures of actual activity like dwelling sales and consents, retail spending etc.

Not borrowers because the 0.8% quarterly growth was what the Reserve Bank expected so there are no interest rate implications.

WILL THIS CONTINUE?

No. The NZ economy cannot continue growing at 4.4% per annum because we don’t have the resources be they

skilled and unskilled employees, good roads, sufficient electricity to avoid brownouts, business machinery etc.

Also there are many negatives hitting demand including

drought, lower commodity prices, the rising exchange rate hitting export returns, depressed world growth amid war, oil price and sharemarket worries,

We forecast growth near 2.5% this year with the risk it comes in below this slightly but with support from migration, low interest rates, and education of foreigners.

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