Internal Demand Lifts Economy

Economic activity increased by 0.6 percent in the December 2001 quarter, according to information released today by Statistics New Zealand. The rise in activity this quarter reflects higher consumer spending coupled with a rise in new housing investment and increased business investment. As a consequence, internal demand was up 2.5 percent.

A significant portion of internal demand was met from imports, up 3.2 percent. Partly offsetting the increase in internal demand were lower export volumes, down 2.6 percent.

The increase of 0.6 percent follows a 1.8 percent increase in the June quarter and 0.2 percent increase in the September quarter. For the year to
December 2001, the economy grew 2.4 percent after recording 3.8 percent growth for the year to December 2000.

Household spending has held up over the last four quarters, further increasing by 1.4 percent this quarter. Levels of spending are now 3.5 percent higher when compared with the same quarter of the previous year. The latest figures show increased expenditure on big-ticket items such as furniture, appliances, computers and, most notably, vehicles. In addition, investment in new housing showed strong growth, up 20.3 percent for the quarter. However, despite this quarter's increase, new housing construction is down 9.5 percent for the year ended December 2001.

Business investment in fixed assets increased 8.5 percent this quarter, following a 6.6 percent fall in the September quarter. The plant, machinery and equipment asset-type was again the main driver of the overall movement, up 22.5 percent. Much of this increase was met from imports and wholesalers' inventories.

Notable falls in export volumes were recorded for dairy products and travel services. Much of the decline in travel and transport services can be attributed to the impact of lower December quarter overseas visitor numbers following the September 11 terrorist attacks on the US.

The level of industry production activity was mixed this quarter. Construction, retail trade, finance, business and personal services all rose as housing investment and consumer spending increased. Offsetting this were falls in travel and tourism related industries. Both primary and manufacturing industries fell this quarter, the fall in manufacturing being reflected in lower exports. For the year ended December 2001, manufacturing activity increased by 0.5 percent. Agriculture showed a small increase this quarter, with increases in dairy output countering falls in wool production, which was down due to wet weather disrupting the normal shearing pattern. Electricity, gas and water activity rose 9.7 percent as increased water inflows into South Island lakes resulted in hydro generation replacing the relatively more expensive thermal generation.

The expenditure-based measure of GDP, released concurrently with the production-based measure, recorded a 0.7 percent increase for the December quarter.

Brian Pink Government Statistician

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