NZ economy probably slowed in third quarter, but did it stall?

New Zealand economic growth probably slowed in the third quarter, as retail spending fell and agricultural production eased from its first-half highs, offsetting a strong pickup in construction activity.

Gross domestic product grew 0.5 percent in the three months ended Sept. 30, according to a Reuters survey of nine economists, after a 0.6 percent expansion in the second quarter. Forecasts ranged from zero growth of 0.7 percent. Growth of 0.5 percent puts the market ahead of the Reserve Bank which on Dec. 6 forecast the economy grew just 0.2 percent. Since then data has prompted some economists to lift their estimate, such as those at Bank of New Zealand, to 0.5 percent from 0.3 percent last week after deeming manufacturing stronger than it has anticipated.

By contrast, economists at Westpac Banking Corp are betting that growth stalled in the third quarter, as farm output slowed, retail sales dropped and employment weakened. Unemployment rose to a 13-year high 7.3 percent while retail sales fell 0.4 percent.

The range of estimates suggests there’s room for a market surprise when the figures are released at 10:45am on Thursday. “Any positive rate of GDP growth for Q3 will likely be greeted with relief,” said Robin Clements, economist at UBS New Zealand, which is forecasting 0.5 percent growth. “We expect Q3 growth but it would be unwise to ignore the risk of a downside shock.”

To be sure, the New Zealand dollar has plenty of positive sentiment built into it. The kiwi climbed as high as 84.75 US cents in New York on Friday, edging past its Feb. 29 peak to the highest since early September 2011. The local currency still looks a relatively attractive place to invest given that interest rates are higher than in many developed economies and growth is less weak. UBS forecasts 2.6 percent economic growth in New Zealand for all of 2012, which would beat its prediction of 2.2 percent for Japan, 2.1 percent for the US, zero for the UK and a 0.4 percent contraction for the Euro zone.

Construction was likely the standout sector in the third quarter. Even Westpac, with the weakest GDP forecast in the survey, says spending on construction “can be expected to radiate out into other sectors, such as manufacturing, wholesaling, transport and business services.” The volume of building work put in place recorded its biggest gain in 10 years in the third quarter, led by construction work in Canterbury and the upper North Island, according to government figures Building activity rose 9.6 percent in the third quarter and was valued at $2.9 billion in unadjusted terms, with residential building work made up 56 percent of the total. “We expect stronger construction activity to be the key driver of GDP growth in the September quarter,” said ASB economists Nick Tuffley and Christina Leung, in their preview of the data. While much of that reflects Canterbury’s post-earthquake rebuild activity taking place, the Auckland housing market is also heating up and ASB expects “an acceleration in residential construction activity over the coming years.” Commercial construction is also picking up.

The primary sector probably subtracted the most from third quarter GDP, with dairy production coming off a record season in the first half of the year and data suggesting meat production also eased. Milk production and livestock slaughter numbers indicate an easing in dairy and meat production over Q3 from these high levels, suggesting a small decline in primary manufacturing over this period.

Also out this week, is balance of payments figures for the third quarter. The current account deficit widened to $4.83 billion in the three months ended Sept. 30 from $1.8 billion in the second quarter. The annual deficit narrowed to $9.83 billion, or 4.8 percent of GDP, from $10.1 billion, or 4.9 percent.


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