Economy expands in second quarter from increased demand

New Zealand's economy expanded in the second quarter in line with expectations as export and domestic demand underpinned growth although output in the construction sector continued to weaken.

Gross domestic product expanded 0.8 percent in the three months to June 30, up from a revised 0.6 percent expansion in the March quarter and was 2.5 percent higher on the year, Statistics New Zealand said. The median in a Bloomberg poll of 12 economists' forecasts was for GDP to expand 0.8 percent in the three months ended June 30 and 2.5 percent on the year.

"Demand for exports has resulted in strong production growth in manufacturing and service industries," said national accounts senior manager Gary Dunnet.

Exports rose 5.2 percent, with exports of goods posting its biggest quarterly rise in nearly 20 years. This was driven by international sales of dairy and forestry products. Stats NZ noted that dairy export volumes were up 19 percent in the June quarter as dairy inventories were run down. Exports of goods rose a quarterly 6.3 percent while services exports gained 5.4 percent.

Growth in exports of services benefited from strong tourism in the June quarter, helped by two international events staged in New Zealand - the World Masters Games and the British & Irish Lions Rugby Tour.

Eleven of the 16 industries increased in the June quarter with retail trade and accommodation expanding at the fastest pace in the quarter, Stats NZ said. Retail trade and accommodation continued to be boosted by the country's strong tourism flows and growing population, gaining 2.8 percent on the quarter and 6.6 percent on the year.

Manufacturing production grew 1.8 percent in the quarter and was 2.6 percent higher than a year earlier, with food, beverage and tobacco product manufacturing being the largest contributor.

Activity, however, was weighed on by a construction, which contracted 1.1 percent following the 2.1 percent decline in the March quarter. The fall reflected lower construction-related investment, including investment in non-residential and residential buildings and infrastructure. Construction contracted 0.1 percent on the year.

Today's figures show agriculture, forestry and fishing growth was unchanged on the quarter and down 0.9 percent on the year.

Overall, primary sector activity fell 0.8 percent in the June quarter, following flat activity in March. Forestry and logging increased 8.1 percent - the highest since December 2012. Agricultural activity fell 1.2 percent in the June quarter, following 3.9 percent growth in the March 2017. The decrease was driven by lower cattle and lamb farming, partly offset by higher milk production.

Mining activity also fell for the third consecutive quarter, down 5.2 percent on quarter and 8.3 percent on the year. However, lower oil and gas extraction was partly offset by increases in coal mining, oil exploration, and mining support services.

On an expenditure measure, GDP increased 1.1 percent, underpinned by a 5.2 percent increase in the exports of goods and services as well as a 0.9 percent increase in household consumption expenditure. GDP expanded 2.5 percent on an expenditure basis from the same period a year earlier.

On a per capita basis, GDP rose 0.3 percent in the quarter, following a flat result in the March quarter. In the year ended June, it was up 0.6 percent.

Stats NZ also said the real purchasing power of New Zealand's income rose in the June quarter with real gross national disposable income - or RGNDI - up 1.4 percent in the June quarter, following a 1 percent fall in the March quarter. RGNDI per capita was up 0.9 percent in the June quarter following a revised 1.6 percent decline in the March quarter.

The size of New Zealand's economy in current prices was $268 billion, Stats NZ said.

(BusinessDesk)