NZ Growth Was Strong – But Big Slowdown Ahead
WHAT HAPPENED?
Statistics NZ released data showing the NZ economy officially grew by 0.8% during the December quarter which is right on
the long term average growth of 0.8% per quarter. In the entire 2002 year growth was 4.4% versus a ten year average of
3.5%. Growth was a below average 2.7% during 2001.
WHY DID THIS HAPPEN?
Strong growth over 2002 was mainly caused by booming house construction up 20.4%, spending by consumers on durable goods
up 8.3%, and 6.6% growth in capital expenditure on plant, machinery & equipment. Export growth was strong at 7.6% but this was more than offset by import growth of 8.8%. Factors driving the
stronger than average growth included
surging inward migration, below average interest rates, feed-through of record farm incomes, upturn in the housing
cycle.
The easing of growth to 0.8% in the December quarter and 0.9% the previous quarter from 1.7% in the June quarter partly
reflected lower wood processing and machinery manufacturing.
WHO IS AFFECTED AND HOW?
Hardly anyone directly because these data are so out of date – some 4.5 months from the quarter mid-point of
mid-November. The focus of us economists is on leading indicators like confidence measures plus more up to date measures
of actual activity like dwelling sales and consents, retail spending etc.
Not borrowers because the 0.8% quarterly growth was what the Reserve Bank expected so there are no interest rate
implications.
WILL THIS CONTINUE?
No. The NZ economy cannot continue growing at 4.4% per annum because we don’t have the resources be they
skilled and unskilled employees, good roads, sufficient electricity to avoid brownouts, business machinery etc.
Also there are many negatives hitting demand including
drought, lower commodity prices, the rising exchange rate hitting export returns, depressed world growth amid war, oil
price and sharemarket worries,
We forecast growth near 2.5% this year with the risk it comes in below this slightly but with support from migration,
low interest rates, and education of foreigners.