Economic activity stalls in June quarter

Gross Domestic Product: June 2000 quarter

Economic activity decreased in the June quarter by 0.7 per cent, announced Deputy Government Statistician Ian Ewing when releasing the latest Gross Domestic Product (GDP) figures. This follows a 0.6 per cent rise in the March quarter. Despite the drop in the latest quarter the level of total economic activity was 4.5 per cent higher than the same quarter a year ago. This was the result of the consistent growth in the three previous quarters. For the year to June the economy grew 4.8 per cent, after recording 0.8 per cent growth for the year to June 1999.

The drop in activity this quarter reflects a fall in spending on new housing, coupled with a decrease in government spending and flat consumer spending. Although growth in business investment (including stocks) remained steady the domestic economy experienced a fall in internal demand, down by 0.5 per cent. Much of the domestic demand continues to be met from imports. As a result, the growth in import volumes of 1.6 per cent this quarter has outstripped that for exports, which increased by 0.7 per cent.

With internal demand down, as well as export volumes of meat and dairy products falling, there was reduced activity in both primary and goods producing industries. The largest fall occurred in construction and there were also sizeable declines in agriculture and manufacturing. An early close to the dairy season resulted in reduced activity for agriculture which, coupled with a drop in dairy export volumes, carried through to primary food manufacture. Despite exports of manufactured goods being buoyant, weak domestic demand, with consumer spending on durables and non-durables down, appears to have dampened activity in other manufacturing industries. The lift in construction activity recorded in the March quarter proved short-lived, and the pronounced fall in building work-put-in-place has been reflected in those industries manufacturing timber and other building supplies. Growth was chiefly recorded in the wholesale trade and transport and communications industries.

Business investment on fixed assets increased 2.0 per cent, a similar growth rate to the 1.8 per cent lift recorded in the March quarter. The growth was concentrated in investment on plant, machinery and equipment, while that for non-residential buildings and infrastructure declined. Investment on transport equipment also fell, reflected by commercial vehicle registrations being down in the June quarter.

Household spending was flat this quarter, up slightly by 0.2 per cent, following a small decrease in March. Spending for the year to June, however, was up 2.8 per cent after increases in the September and December 1999 quarters. Expenditure on non-durables fell for the second quarter in a row, while spending on durables also decreased this quarter, particularly purchases of motor vehicles, clothing and footwear. Investment in new housing fell sharply this quarter, down 23.1 per cent, following a 16.0 per cent lift in the March quarter.

Export volumes recorded modest growth, up 0.7 per cent, with a lift in forestry products and manufactured goods countered by a drop in agricultural exports, namely meat and dairy products. Services were also up, buoyed by increased international visitor numbers and a favourable exchange rate. For the year to June, exports increased 8.7 per cent. Following a flat result in the March quarter (once the effect of the frigate purchase is removed), import volumes increased 1.6 per cent in the latest quarter. Strong growth was recorded for machinery and equipment imports with total goods imports being up 2.9 per cent. In contrast imports of services declined 4.5 per cent. For the year to June imports increased 9.7 per cent.

The expenditure-based measure of GDP, released concurrently with the production-based measure, recorded a 0.9 per cent decrease for the June quarter.

The GDP implicit price deflator recorded a 0.2 per cent increase over the June year. This is a broad measure of the overall price change for final goods and services produced in New Zealand.

Ian Ewing DEPUTY GOVERNMENT STATISTICIAN END

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