Household Spending Keeps Economy Buoyant
Gross domestic product (GDP) in current prices rose 4.8 percent in the year ended March 2003, according to the annual
national accounts released by Statistics New Zealand. This follows a 7.9 percent increase in the previous March year.
When the effects of inflation are removed, there was an increase of 4.4 percent in constant price GDP for the March 2003
The latest increase in current price GDP has been driven by internal demand, up 5.6 percent. Boosted by a record net
inflow of migrants and a rising level of employment, household consumption expenditure recorded a lift of 6.5 percent
for the March 2003 year.
There was also significant investment in new residential buildings, up 28.8 percent. Increases were also recorded in
government spending, up 5.1 percent, and business investment in fixed assets, up 2.1 percent.
The two key components of national income (compensation of employees and gross operating surplus) increased.
Compensation of employees was up 6.2 percent in the March 2003 year, following a 7.8 percent rise in the previous March
year. Both numbers employed and earnings increased during the March 2003 year.
Gross operating surplus increased 2.6 percent in the March 2003 year. This follows rises of 8.6 percent and 8.4 percent
in the years ending March 2002 and 2001, respectively. Following highly profitable returns in the 2002 and 2001 March
years, primary producer incomes have dropped significantly in the latest March year. Farming incomes are estimated to
have fallen by 23.0 percent. These declines have moderated the effect of increased business incomes in the rest of the
National disposable income, which measures the income available to New Zealand residents for current consumption or
saving, rose 4.6 percent. However, with final consumption expenditure (private and government) up 6.1 percent, national
saving declined from $6,077 million to $4,903 million. As a percentage of national disposable income, saving was 4.7
percent in the March 2003 year, down from the 6.1 percent high recorded last year.
Investment in fixed assets grew strongly for the second successive year, up 8.7 percent following a lift of 9.0 percent
in the March 2002 year. However, much of this reflected the buoyant housing market with investment in new dwellings up
28.8 percent. Business investment increased 2.1 percent in the March 2003 year, largely due to increased spending on
Investment in road vehicles was particularly strong, recording a rise of 22.2 percent.
There was a further build-up in inventories of $739 million for the year to March 2003, although this was down on the
significant increases recorded in the previous three years.
With the decline in domestic saving, much of the increase in investment was financed externally.
Net borrowing from the rest of the world increased from $1,396 million (1.1 percent of GDP) to $3,534 million (2.7
percent of GDP).
The strengthening New Zealand dollar had a marked impact on the external account.
While export volumes continued to grow (up 7.0 percent) a stronger dollar, together with a drop in dairy commodity
prices, reduced export receipts (down 4.0 percent). This follows increases of 23.8 percent and 5.2 percent in the March
2001 and 2002 years, respectively. The stronger dollar also reduced the New Zealand dollar cost of imports. While import
volumes were up strongly (by 9.4 percent) import payments at $39.9 billion were unchanged from the March 2002 year. As a
result of the decline in export receipts, the external current account deficit rose from $2.8 billion to $5.0 billion,
or 3.9 percent of GDP.