NZ economy grows 0.7% in 2Q as surging services make up for weak primary sector

New Zealand’s economy grew just ahead of expectations in the second three months of the year as the fastest growth in the services sector for seven-and-a-half years offset shrinking activity in the primary sector when global commodity prices were coming of highs.

Gross domestic product expanded 0.7 percent in the three months ended June 30, ahead of the 0.6 percent pace expected in a Reuters survey of economists, and slowing from the 1 percent pace in the first quarter, according to Statistics New Zealand. The annual pace of economic growth accelerated to 3.5 percent in the June quarter from 3.3 percent in the March period, just below the 3.6 percent pace predicted in the Reuters poll.

New Zealand’s services sector, which accounts for about two-thirds of the economy, rose 1.4 percent, the biggest gain since the December 2006 quarter, driven by a 3.3 percent increase in professional scientific and technical services. Service industries grew 2.6 percent on an annual basis, led by a 5.3 percent increase in health care and social assistance.

“All 11 services industries increased this quarter,” national accounts manager Gary Dunnet said in a statement. “The biggest increases were in industries that include advertising, employment services and software development.”

The government data comes after a BNZ-BusinessNZ survey this week showed New Zealand’s services sector activity continued to expand in August, extending its period of growth since July 2010. The performance of services index showed employment was at its highest level since the survey began in 2007.

The gain in the local services sector offset a 3.1 percent decline in primary industries, with agriculture, forestry and fishing down 2.8 percent and mining activity shrinking 4.5 percent. On an annual basis, primary industries production grew 4.4 percent, led by a 5.9 percent expansion in agriculture, forestry and fishing.

Construction grew 2.2 percent in the quarter, for an annual expansion of 12 percent, while manufacturing shrank 0.3 percent in the quarter, with growth of 3.1 percent in the year.

Last week Reserve Bank governor Graeme Wheeler said he expected the local economy remained supported by building activity, consumer spending and business investment, and expected annual growth of 3.7 percent in calendar 2014

Investment in residential property shrank 0.2 percent in the June quarter, while non-residential investment grew 2.5 percent and other construction, such as infrastructure and engineering, expanded 20 percent. Investment in plant, machinery and equipment shrank 1.2 percent, while transport equipment investment grew 9.9 percent and intangible fixed assets expanded 6.2 percent. Overall business investment grew 2.5 percent in the quarter, for a 7.2 percent annual growth.

On the expenditure measure of GDP, the economy grew 0.5 percent, beating the Reuters poll estimate for 0.4 percent, and expanded 2.7 percent on an annual basis. Private consumption was up 1.2 percent in the quarter, with household expenditure growing 1.3 percent. Central government expenditure grew 0.3 percent in the June quarter.

Real gross national disposable income, which measures the country’s real purchasing power, shrank 0.5 percent in the quarter, its first decline since June 2012, due to a fall in the services terms of trade. On an annual basis, the measure grew 7.8 percent, the biggest annual increase since the series began in June 1987.

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