Building booms, households cautious

Last updated 15:40 19/06/2014

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New Zealand's economy made a nod to better times, with annual growth of 3.3 per cent the biggest March-year gain since before the global financial crisis hit. 

However, the latest gross domestic product figures show household spending flattened after strong gains last year, with the building boom driving more recent growth.

For the three months to March 31, the first quarter, the economy grew 1 per cent. Most economists had expected growth of more than 1 per cent in that period, so the result was slightly lower than expected.

The Reserve Bank and the average market forecast was for growth of 1.1 per cent in the quarter.

However, today's figures included a slight revision up in the December quarter.

With quarterly growth of 1 per cent for three quarters in a row, Westpac Bank economists said, the figures would "do nothing to dissuade the Reserve Bank from its intention to continue hiking the official cash rate in its July review".

Households spent more on things like television sets and liquor but less on services during the quarter, in contrast to strong spending last year.

Statistics New Zealand figures showed construction activity surged 12.5 per cent in the March quarter through large rises in residential and non-residential building.

Growth in construction activity was strong in Canterbury and in the rest of the country.

"Construction was responsible for two-thirds of GDP growth this quarter," Statistics New Zealand national accounts manager Gary Dunnet said.

"This is the largest increase in construction in 14 years."

The March-quarter boom in building work was the second highest on record, just behind the March quarter in 2000.

In value terms, building work in Canterbury was up 31 per cent in the March quarter, but 12 per cent in the rest of New Zealand.

Mining was up 6.3 per cent in the March quarter because of higher oil and gas production. That was a bounce-back from a near 10 per cent slump in mining in the September quarter when the big offshore Maari oil field was closed down for about four months.

Offsetting the gains in building and mining was a 1.5 per cent drop in the wholesale trade sector, with a dip in machinery and equipment wholesaling.

This is the third consecutive quarter in which GDP has grown by 1.0 per cent or more, with the December quarter revised up from 0.9 per cent to 1 per cent.

Spending by New Zealand households was flat, with higher spending on durables like television sets but less spending on services.

Spending on durables has stormed ahead almost 9 per cent in the March year, the highest annual increase for a decade.

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Spending by tourists increased 7.7 per cent. Higher tourist spending also drove an increase in exports of travel services, which contributed to a 3.1 per cent rise in exports.

The size of the economy (in current prices) was $227 billion for the year ended March.

In forecasts out this week, economic growth was expected to speed up to 3.8 per cent in the year to March 2015, and the recovery is broad-based, not just because of the Canterbury rebuild.

The surge in house building is expected to carry on for five years in a row; a boom not seen since the early 1980s, and before that in the 1970s.

The New Zealand Institute of Economic Research's latest consensus forecasts this week had tipped growth of 3.1 per cent in the year to March 2014, speeding up to almost 4 per cent in the following year.

- Stuff

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