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GDP grew 1.5% in December quarter; Highest growth since December 2009 quarter; Much stronger than expected; Dollar rises

Posted in News Updated

New Zealand's economy grew by 1.5% in the December quarter, according to Statistics New Zealand.

The figure is much better than market expectations, which on average were for a 0.9% increase. The rise is the highest since December 2009. The news sent the Kiwi dollar immediately about US0.5c higher, though it then gradually started slipping back a little.

Economic activity for the year ended December 2012 was up 2.5%. This is the highest annual growth in GDP since March 2008, when the economic recession began.

Westpac economists, who had earlier this week put out a top-of-the-market pick of 1.2% for the GDP growth, said today's figure was "a significant development".

Chief economist Dominick Stephens and senior economist Michael Gordon said markets had long doubted the stimulatory effect of the Canterbury rebuild.

"Those doubts will now be dispelled," they said.

"To put it in perspective, the surprise to the Reserve Bank today is equivalent to the maximum downside impact they could reasonably build in for drought.

"We feel this data is a step towards backing our call for earlier and more aggressive OCR hikes than the market is currently pricing."

Statistics New Zealand's national accounts manager Rachael Milicich said 15 of the 16 industries included in the figures recorded increases in activity in the last three months of 2012, "reflecting the broad-based nature of growth in this quarter".

Finance Minister Bill English welcomed the figures. “Indications are that growth will continue this year as consumer and business confidence rises. A lift in household spending signals that people are feeling more secure and optimistic. We are also seeing a pick-up in construction activity beyond the re-build in in Christchurch and which will flow-through to other parts of the economy," he said.

"“We are on track for 2-3%-plus growth over the next few years, though internationally the problems of high debt and low growth remain and, at home, the impact of the drought is very likely to temper overall growth in the economy."

Those factors make it important for the Government to continue to focus on its Business Growth Agenda initiatives aimed at improving New Zealand’s productivity and competitiveness as a way of fostering job growth and lifting wages. “As we have previously noted, New Zealand is still performing better than most other OECD countries. New Zealand’s GDP growth of 3 per cent in 2012 compares with 1.6 per cent in the US, 1.1 per cent in Canada, 0.4 per cent in Japan, 0.3 per cent in the UK and -0.9 per cent in the Euro area. “We expect our growth to continue as the Government retains tight control of its spending, households and businesses pay down debt, and very low interest rates and low inflation continue their long run.”

The industries with the largest contributions to growth were: agriculture, forestry, and fishing (up 2.6%), mainly due to the largest quarterly increase in forestry and logging activity in 13 years; retail trade and accommodation (up 2.3%), due to the largest quarterly movement in retail trade since the March 2007 quarter; wholesale trade (up 2.1%), now back to pre-recession levels; construction (up 1.8%), due to infrastructure construction, which includes roads, bridges, and power plants.

The expenditure measure of GDP was up 1.4% in the December 2012 quarter. The main features of this growth were: household expenditure on goods and services rose 1.6%, the largest quarterly volume increase in six years; investment in fixed assets rose 2.2%, with increased investment in plant, machinery, and equipment, and infrastructure construction; exports of goods rose 2.1%, with log exports up while dairy exports are down. Imports of goods fell 3.1%, mainly due to capital goods.

Statistics NZ said forestry and logging production grew 9.0% in the December 2012 quarter, the largest increase since September 1999.

"Forestry and logging activity is now at its highest level since the series began in June 1987," Statistics NZ said.

Exports of forestry primary products also rose as measured by the expenditure measure of GDP. Agriculture activity increased 1.5%. This increase was due to increased poultry, deer, and other livestock farming. Partly offsetting this was a fall in dairy production, which is reflected in a decrease in dairy products exported. Mining production also increased, up 5.6%, after a 6.8% fall in the September 2012 quarter. The latest increase was driven by exploration activity.

Statistics NZ has included in its release a section relating to the potential impact of the current drought.

It says that the dry weather that New Zealand is currently experiencing is likely to impact on GDP during the 2013 year. The Government has indicated the drought might cost the economy about NZ$2 billion this year.

Statistics NZ says in GDP, the quarterly indicators for agriculture are outputs such as milk production and slaughter numbers. These numbers are reconciled to annual benchmarks as more comprehensive data becomes available.

"In the current quarterly method, there are no indicators for intermediate consumption (the goods and services used during production) so intermediate consumption is usually updated annually. During periods of drought, the value added of agriculture can be affected by changes to both output and intermediate consumption," Statistics NZ says.

"Output is boosted as animals are sent for slaughter, and declines as production (such as milk production) falls. Output impacts do not always show up during the quarter when dry weather is experienced because the effects can last several quarters. A drought can affect future production, through reduced herds or conception rates. Intermediate consumption can go up as farmers purchase feed to replace grass or move stock to other areas. We will supplement existing quarterly indicators with other available data to measure the impact of the drought, but the full impact will not show up until the more comprehensive annual data is incorporated."

English says factors such as the drought make it important for the Government to continue to focus on its Business Growth Agenda initiatives aimed at improving New Zealand’s productivity and competitiveness as a way of fostering job growth and lifting wages.

He says New Zealand is still performing better than most other OECD countries, with our GDP growth comparing with 1.6% in the US, 1.1% in Canada, 0.4% in Japan, 0.3% in the UK and -0.9% in the Euro area.

“We expect our growth to continue as the Government retains tight control of its spending, households and businesses pay down debt, and very low interest rates and low inflation continue their long run.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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34 Comments

Looks like reports of the

Looks like reports of the death of the NZ economy and a consequent massive slump may be a bit premature.

Absolutely. As long as we can

Absolutely. As long as we can keep borrowing more and more to fund our "growth", we can pretty much assume both will be exponential. No worries mate
edit: sorry, already mentioned by wtf below

wow, great result but as the

wow, great result but as the article says 2013 is likely to be more sombre.

Say thank you forestry.

Say thank you forestry.

KS - Glad someone else had

KS - Glad someone else had noticed that.
From what I understand forestry could be quite good for about 5 years or more.
There's always an industry or two in NZ that pulls the economy through. 
In the late 1980's early 1990's it was predicted that there would be a shortfall in the log market around now. So I watch with more than a little interest.
 

The current account deficit

The current account deficit for the quarter was $2.7 billion. A 1.5% increase in activity for a quarter is presumably approximately $750 million.  ($200 billion * 1.5% / 4). So it's not hard to see where the funding for the growth is coming from, and the cost benefit ratio doesn't look flash. Better if growth was funded domestically in the sense that our collective wealth would not be eroded so quickly, and that investment and spending would be funnelled into long term productive activity, rather than nominal asset price growth and consumer spending on the back of it. Much better to have consumer spending on the back of profitable trading and employment.

Yeah who knew you could

Yeah who knew you could generate GDP growth by people and governments borrowing more and spending it. Genius!

With growth rates this strong

With growth rates this strong you do have to wonder why interest rates are still pegged at emergency lows. The last time we had a quarter of growth like this rates were 2-3 times higher. Oh yes I forgot, financial repression is the order of the day......

Growth is not  that strong

Growth is not  that strong for the expenditure measure of nominal ann. GDP @ 2.3304% for the year ending Dec12. This is well below the rate of  mortgage costs and most other funding cost measures Real money has to be spent and thus lost in the real sense - inflation is not coming to rescue debtors, thus our banking system remains at risk of defaulters taking it down..
 
Interestingly enough the previous year to Sep12 release for the same series has been revised from an ann. growth rate of 2.63% to 2.98%

RBNZ plan is to inflate the

RBNZ plan is to inflate the debt away is why

so ok where are the wage

so ok where are the wage increases to feed the inflation?
regards

It all sounds very good but I

It all sounds very good but I expect a downward adjustment at the next quarterly release. And again in the next two quarters following.
 
Combined this quarter and those following may not look that great.
 
Oh, and our net international liability increased $2.2 billion for the quarter to December 2012.

there goes our dollars, and

there goes our dollars, and housing..
And Russell wants an inquiry..

saved by forestry well drive

saved by forestry
well drive around the country see the nude hills waiting for rain to wash of the topsoil and out to sea to further destroy fishing. sustsinable not in any way.  disgraceful but look at the money. shame NZ shame

Vavau.to - Are you referring

Vavau.to - Are you referring to recently harvested forests or is that a general statement?
 
If you are referring to recently harvested plantations you might like to consider that these areas are replanted pretty quickly after harvesting. The root structures of the harvested trees have not broken down by the time the replanting takes place and this helps in keeping soil in place.
 
In regards to rain washing sediment downstream this is a natural phenomena that takes place. Sediments finally exit at river mouth out to sea and wash up on beaches along coastlines which is natures way of building sand along beach fronts.
There are also many species which rely on the sediments being washed down stream and out to sea for their survival.
 

As long as primary sectors

As long as primary sectors hold up and MPI does not make a headline, NZ's economy will hold up.
 
Thankgodness, AKL property price did not get mentioned -- to boring.....

  Touche Dr Christoph

 
Touche
Dr Christoph Schumacher, professor of innovation and economics at Massey University in Auckland, said economic growth had become an end unto itself rather than a means to a better life.
"Our current economic mantra is always about growth, but continuous economic growth is not environmentally sustainable, and it is not making us happy," he said.
"So, if it's not sustainable and it's not making us happy why are we so obsessed with this model?"
 
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10872671

I wholeheartedly agree with

I wholeheartedly agree with Schumacher's article, thanks for the link.

If you don't think that

If you don't think that increasing your personal economic wealth will make you happy, who's forcing you to increase it; and how?

It would be funny if it

It would be funny if it wasn't so sad. Here it is, we get a good number, and all some bloggers can do is complain that such high growth is not sustainable by the planet - God help me. All they had to do was hold their collective breaths, wait for the next bad thing to happen, then make themselves feel good by complaining about it again.

I agree, there is something

I agree, there is something wong with our economists, our Reserve Bank and our Australian owned banks. When things are turning around. Our thoughts should be towards, how do we keep the momentum going and still curb inflationary price increases. The OCR cannot go up and banks must keep interest rates low. We cannot afford to have New Zealanders continuosly stripped of their wealth by high interest costs. High interest rates damages our economy. The Australian banks don't care because they make a margin. They don't care that Japanese housewives make money and New Zealanders get poorer and poorer. Our Reserve Bank is not independent. They serve their mates, the banks.
Banks must be forced towards holding higher equity to support loan books. It is their indiscriminate lending that causes the problems. Do not blame New Zealanders for poor savings. It is poor government, tax and Reserve Bank policies that make New Zealand poor and favour foreigners.

Too true.  If it's not bad

Too true.  If it's not bad for the environment it's "fueled by debt" or "based on a housing bubble".  If the growth continues for a good length of time they start posting "recession is just around the corner". 

I don't think anyone living

I don't think anyone living on fixed interest would agree with the "high interest rates damage our economy " statement - it's these people who are paying the price for bailing out the others, and all they need are fair interest rates which s not the case currently - that's said they're coming.
Yes it not everyone else's  fault for borrowing, it's the banks and politicians - by the way, who voted these politicians in over the past few decades ?  The "it's not my fault" attitude is frankly pathetic and a great example of why we are at where we're at, and more importantly, why it will take so much longer to exit it - blaming others never does that

Yet that is a self-interested

Yet that is a self-interested reason (not aimed at you btw)  I mean if you really want to be self-interested you should be praying for deflation and a depression then everything gets cheaper and then your interest is free of tax.
Whats fair? 7%? 10%? bear in mind that if you are getting 7% from the bank, its charging at least 2% and in turn a business is getting screwed thats no or less expansion and no more jobs.......or someone with a mortgage...
Inflation is pretty low right now...so surely the "fair" bit is the NET difference?
Inflation is coming, yeah Im sure sometime in the next 100 years there will be inflation...the Q is is it coming due to what is happening economically right now? no I dont believe so....I mean what has changed in the last 4 years that takes us from dis-inflation to inflation? its just not there...and Id suggest not there for 5 maybe 10 years.
"its not my fault" totally agree, to quote jesus? let he who is without sin cast the first stone.
In terms of exiting of course and how thats where Im sure we 2 will greatly differ   ;)
With energy constriants before us I dont think we ever will "exit" for long.....ie we might see a saw tooth effect but the trend will be recession and shrinkage of our economy...
Meanwhile of course every Pollie is promising it will get better especially if we put them in charge....
A guy called Matt simmons said that he thought it would take the third saw tooth before enough ppl cottoned on to see it accpted....currently we are on tooth 2....so some years....
3 maybe 5.
regards
 
 
 

Our politicians are voted in

Our politicians are voted in by popular vote. They usually do not have enough practical experience. They rely on experts. Our experts are reliant on an old outdated economic theory and our Reserve Bank is best mates with our Australian owned banks. The old economic theories may have worked in the past. But we need to change and adapt because we are very clearly being stripped of our wealth. New Zealand is falling and falling fast. We are getting poorer and poorer. Interest rates are too high because we are a highly indebted nation. We have lost most of our savings and equity to foreigners. To reinstate our wealth we need lower interest rates. To be competitive against our foreign rivals our businesses need lower interest rates. To increase government taxable profits, we need lower interest rates. High interest rates strip our government of tax. Tax that funds our public welfare, our schools, our hospitals.

Leaders lead and people

Leaders lead and people follow. Trying to lay the blame on New Zealanders for poor leadership does not help solve this problem. This is not an individual problem it is a collective problem. Look to Singapore for solutions. We are now students. Our problems are not new. We are no longer a First World nation. We need to understand that we are now Third world standards. We are a poor nation. We need to learn from the rich economies and adopt their economic principles. Singapore is a good example. Read their economic history and learn from the masters on how to transfer wealth from rich western nations to poor eastern nations.

With Real Gross Disposable

With Real Gross Disposable Income at 1.0% on an annualised basis , the lowest  confusingly  since the December 2009 quarter ,are we having real  real growth or a statistical anomaly  . In the quarter we had falling  prices (CPI -0.2%) whilst the economy was motoring, so price deflation  oddly translated into higher GDP. The question (I  have again) is it our measurement methods , where our nominal GDP again is slower than real GDP  is being caused by  numerical miscalculations/quirks , particularly the implicit price deflator , which has now fallen sharply for the past five quarters and now annualised is actually negative. How often this has occurred over the past few decades I am unsure of , but if this economy was 'normal ' one would have expected nominal GDP to be higher than real GDP. The issue in part  of course comes back to the terms of trade which have fallen for the past six quarters and our exchange rate. With  no fall in the exchange rate as expected ,import prices have not risen ,causing domestic inflation to be lower than expected, nominal incomes /tax revenues will not have risen as fast as expected . Thankfully with real estate services at 25 year highs , everything will be ok.

Thank you ostrich - an

Thank you ostrich - an illuminating insight
 
Readers can view nominal and real quarrterly GDP data together with the price deflator as extracted from Stats NZ infoshare.
 
See attached files for the Sep 12 and Dec 12 releases.
 
 

Thanks for links Stephen.

Thanks for links Stephen. Unsure how the economic cards will be dealt in the next few  months.

np. Not well.

np.
Not well.

more a game of Snap.

more a game of Snap.

Thanks for the links.  Looks

Thanks for the links. 

Looks like Stats NZ needs new reporting tools, these reports look like they've come out of some crusty old DOS system. 

I think this is a figment of

I think this is a figment of someones imagination to stall interest rate falls.We have a major emergency in the form of a drought and it must be quite clear by now it is not getting any better. We are loosing our farms and our Reserve Bank continues to dilly dally and droop off to sleep at the steering wheel. Interest rates need to fall fast and soon.