Dairy sector manufacturing (but not exports) covers for considerable fall in construction activity as GDP grows 0.5% in March qtr vs RBNZ pick for 0.9% growth

By Alex Tarrant

So long construction boom, and thanks for all the milk.

A considerable drop in construction activity looked set to drag the economy’s growth rate to the bottom end of expectations for the first three months of 2017.

But growth was saved by the dairy sector. At least, by manufacturing more milk powder; we’re still waiting to send a load of it overseas. Retail trade also helped, as households boosted spending again, to the greatest rate in over a decade.

Gross Domestic Product (GDP – a broad term used to try and fathom the size of our economy) grew 0.5% during the March quarter, up from 0.4% in the final three months of 2016.

The Reserve Bank of New Zealand, though, had been expecting 0.9% growth in March. Retail economist expectations had ranged from 0.1% to 0.8%.

“Much lower building activity combined with mixed results for the service sector took the shine off higher dairy production, Stats NZ national accounts senior manager Gary Dunnet said. The result was “moderate overall GDP growth.”

The figures released by Stats NZ Thursday showed annual growth in the year to March of 3.0%.

GDP per capita in the March quarter fell by 0.1%, following a 0.2% fall in the December quarter. Annually, GDP per capita rose 0.9% in the year to March 2017.

What construction boom?

Construction activity “fell considerably,” during the quarter, Stats NZ said. With overall activity down 2.1%, both residential and non-residential activity fell.

It might just be a burp. Construction sector growth was 1.4% in the December quarter, and we’re still at a 9.3% annual growth rate due to strong increases through 2016.

Or it might mean we’re at as good as it gets until more capacity comes on stream. Prime Minister Bill English’s latest building-site anecdote this week was that some council requests for interest put out for construction work were not being met with any tenders at all as the industry was maxed out.

Thank God for dairy, then. Still got to export it though

On the positive side of the ledger, activity in the agriculture sector rose 4.3% over the quarter, driven by higher milk production. This flowed through to higher dairy product manufacturing, which contributed to the overall rise in food, beverage, and tobacco product manufacturing, Stats NZ said.

One caution: Dairy exports fell 11% during the quarter, resulting in a build-up of inventory in warehouses around the country. We’ve still got to export some of that increased production.

Net exports overall during the quarter were down, as exports of goods & services fell 0.4% and imports rose 1.3%.

As shown by Wednesday’s current account figures, the signs are that New Zealand households have picked up their purchases of imported goods.

Household spending bounced back this quarter, up 1.3%, reflecting strong growth in retail trade, Stats NZ said. This rise contributed to an annual growth rate of 4.7%, the largest increase in household spending in over a decade.

Activity in the services industries was mixed at positive 0.4% growth, Stats NZ said. The main drivers of growth were retail trade and accommodation. In contrast, transport, postal, and warehousing; and rental hiring and real-estate services were down.

Ending on a positive note: Overall investment was up despite all that lower building activity and less investment in transport equipment.

“Investment in plant, machinery and equipment has been the strongest in almost seven years, reflecting higher domestic production and greater imports of machinery,” Stats NZ said.