New Zealand has avoided dipping into a second recession with news of an 0.2% rise in 4th quarter economic growth, according to yesterday’s report from Statistics New Zealand.
There had been fears the economy would have followed the 0.2% drop in 3rd quarter GDP with another negative reading, thus giving it a second technical slowdown in as many years.
In comparison, 4th quarter growth in Australia was 0.7%, for an annual figure of 2.7%, almost double the NZ rate of 1.5% for 2010.
The NZ dollar hit a three week high after the release of the GDP report, hitting 7.70c at one stage, before ending up half a cent at nearly 74.60 in local trading.
The forestry sector saw strong growth, thanks to continuing firm demand from offshore for logs.
But stronger manufacturing activity drove the expansion in the three months to December, up 2.5% (and ended two quarters of contraction for the sector).
And the impact of the rebound from the September’s 7.3 magnitude earthquake was positive, showing up as a 1.5% rise in construction.
But much of the economy remained sluggish with retail trade down 2%, and wholesale trade off 2.7% in the quarter, the first fall in a year.
In a breakdown on the drivers for the 4th quarter, Statistics NZ said notable movements by industry in the December 2010 quarter were:
- Manufacturing, up 2.5%, mainly due to metal product and machinery and equipment manufacturing.
- Real estate and business services, up 0.9%, mainly driven by business services.
- Forestry and logging, up 6.6%, reflecting continued overseas demand for New Zealand logs.
- Wholesale trade, down 2.7%, following four quarters of growth.
- Retail, accommodation, and restaurants, down 2.1%.
Statistics NZ said the expenditure measure of GDP was up 0.4% in the December 2010 quarter, following a fall of 0.3% in the September 2010 quarter. Notable movements this quarter were:
- The volume of goods and services purchased by New Zealand households was up 0.2%.
- Investment in fixed assets was up 4.8 %, due to increases in transport equipment and non-residential building investment.
- Imports of goods rose 7.0%, the largest increase since the March 2004 quarter.
- Exports of goods rose 4.1%, mainly due to higher volumes of dairy and meat products exported.
"Real gross national disposable income (RGNDI) increased 4.6 percent over the same period. GDP measures the volume of goods and services we produce, while RGNDI is a broad measure of the volume of goods and services we have command over.
"The main difference between GDP and RGNDI for the year ended December 2010 was due to a $3,560 million inflow of reinsurance transfers from the rest of the world, related to the September 2010 Canterbury earthquake."
That measure and the current account will be boosted substantially this quarter and in the June quarter by similar payments in inflows from reinsurance for the second Christchurch earthquake that was so damaging.
Insurance costs are put at around $NZ 10 billion, perhaps more.
That quake and its $NZ15 billion damage bill has battered NZ business and consumer confidence, caused the Reserve Bank to cut interest rates by half a per cent to 2.5%, and will mean another quarter or three of either negative or marginal economic growth.
NZ Finance Minister Bill English said in a statement that the figures "confirm the economy was subdued in the second half of 2010, although there are reasons to be optimistic about the outlook for the coming year".
"They reflect slower domestic growth as New Zealanders increased their savings and paid down debt, as well as the significant impact of the first Canterbury earthquake," English said.
"The economy is making the adjustment it needs to – away from excessive borrowing and housing speculation and towards more savings and debt repayment. It’s important the Government plays its part in this rebalancing by getting its own finances in order and returning to Budget surplus.
"In the short term, this is constraining growth, particularly in domestic sectors like housing and retailing."
English said that there were reasons to be optimistic about economic growth picking up later this year, despite the impact of the Christchurch earthquake.
"New Zealand’s commodity export prices remain around record levels, interest rates and inflation are relatively low, the rebuilding of Christchurch will provide a boost to the regional and national economy, and the Rugby World Cup will attract tens of thousands of visitors." Mr English said.
Statistics NZ said the February Christchurch quake caused more damage than the September event, and the medium to long-term impacts on infrastructure and tourism will be felt throughout the Canterbury region.
The September quake was estimated to have caused some $NZ4 billion of damage, around a quarter of the February bill.
"The short-term disruption to the Christchurch economy from the February earthquake is expected to be much greater than from the September earthquake," Statistics NZ said.
"Lives were lost, buildings collapsed and a large part of the CBD has been cordoned off for some time. Lower activity is expected for Christchurch-based companies, and this is expected to be captured in the retail trade, wholesale trade and manufacturing surveys.
"Other components that may reflect some impact due to the earthquake are education (due to schools being cl
