New Zealand's economic growth driven almost exclusively by rising population
New Zealand's economic growth is barely keeping up with the speed at which the population is growing, amid a slowdown in the primary sector.
Official figures released on Thursday showed gross domestic product rose by 0.7 per cent in the first three months of the year, bringing annual growth to 2.8 per cent.
But while the construction industry is expanding at speed, economists said almost all of the growth was being driven by population growth, currently at a 40 year high, boosted by record immigration.
"Not only is the pace of growth well off its peak in this cycle, but the slowdown has come at a time when sheer population growth should have been boosting the economy," Westpac senior economist Michael Gordon said.
"Strong net migration has lifted population growth to around 2 per cent over the last year, which means that per capita GDP growth has slowed to not much more than zero."
Gordon said the economy had lost two major drivers over the last two years, with dairy prices plunging, and construction related to the Christchurch rebuild well past the peak.
Although construction elsewhere was strong, and income from international tourists was at record levels, this was not enough to offset the loses.
"[P]opulation growth has been the main driver of GDP growth," Gordon said.
The economy had been expected to grow by just 0.6 per cent in the first quarter, but with revisions in growth in 2015, and little sign of wage inflation, the Reserve Bank is still generally expected to cut interest rates in the coming months, probably in August.
This would take the benchmark official cash rate to 2 per cent, a new all time low.
Finance Minister Bill English said the economy was growing "solidly", and the figures were a sign of increasing diversification.
"Despite the dairy sector continuing to be under pressure, other sectors are performing well and contributing to an overall solid rate of economic growth," English said in a statement.
But Labour finance spokesman Grant Robertson said that with New Zealand's fast growing population, growth per person had risen by just 0.5 per cent, while disposable income per person was flat for the last year.
"Right now Kiwis are working extremely hard but they're playing catch up," Robertson said.
Statistics New Zealand said construction, which grew by 4.9 per cent int he quarter, had seen its strongest quarterly growth since March 2014.
The Kiwi dollar jumped on the news, climbing to around US70.8c, up from about US70.4c before the data was released.