Economy grows faster-than-forecast 0.9% in 4th quarter on business services

New Zealand's economy grew at a faster pace than expected in the final three months of 2015 on increased activity in business services, a boost in retail and accommodation spending, and renewed construction activity. The kiwi dollar jumped.

Gross domestic product expanded 0.9 percent in the three months ended Dec. 31, the same pace as the September quarter, Statistics New Zealand said. That was more than the 0.6 percent projected in a Reuters poll of economists and the Reserve Bank's forecast of 0.7 percent. GDP grew 2.3 percent from the same quarter a year earlier, also ahead of forecast, and expanded at a 2.5 percent rate on an annual average basis.

Service industries, which account for about 70 percent of GDP, underpinned the expansion, with retail trade and accommodation up 1.7 percent, financial and insurance services expanding 1.2 percent, and professional, scientific, technical, administration and support increasing 1.5 percent.

"The increase in business services was driven by increased advertising, market research and management services, as well as scientific, architectural and engineering services," Statistics NZ said.

Record inbound net migration has been underpinning New Zealand's economy over the past year and a half as fewer Kiwis depart for Australia, and on increasing numbers of international students arriving. The swelling population has meant increased economic activity hasn't driven up prices as much as the Reserve Bank would have estimated, and governor Graeme Wheeler last week cut the official cash rate a quarter point to a record low 2.25 percent to try to lift inflation back within his target band of between 1-and-3 percent.

The New Zealand dollar rose to 67.72 US cents after the figures were released, from 67.38 cents immediately before. The trade-weighted index climbed to 72.24 from 71.84, clawing back at least half of its slump last week, when the central bank unexpected cut the OCR and flagged a further reduction.

Today's data show the population grew 0.6 percent in the December quarter, for an annual increase of 1.9 percent. That led to a 0.1 percent fall in real disposable income per capita, following on from a 0.1 percent contraction in September. On an annual basis, real gross national disposable income per capita shrank 0.4 percent.

On an expenditure measure, GDP grew 1.1 percent in the quarter, slowing from a 1.4 percent pace in September, and almost twice the 0.6 percent forecast in a Reuters poll. Household spending rose 1.1 percent in the quarter on increased spending on restaurants, petrol and groceries. Business investment, which excludes residential housing, shrank 2.6 percent, led by a a 12 percent contraction in transport equipment and a 5.7 percent decline in plant, machinery and equipment.

On an annual basis, expenditure grew 3.4 percent, with a 6 percent expansion in residential buildings. House building has been a bedrock of the country's economic activity in recent years due to the Canterbury reconstruction effort and heightened activity in Auckland where authorities are trying to encourage building to address a supply shortfall.

Construction activity on the production measure expanded 2.5 percent in the quarter and was up 2.4 percent from the same quarter a year earlier.

Tourism has been supporting the economy as a weak kiwi dollar and cheap oil lures foreign visitors, and while non-resident expenditure shrank 1.2 percent in the quarter it was still up on an annual basis

The primary sector contracted 1.4 percent in the quarter, following a 0.4 percent decline in September, with agriculture, forestry and fishing shrinking 1.6 percent in the three month period due to lower sheep and beef production. On an annual basis, agriculture, forestry and fishing activity increased 0.1 percent.

(BusinessDesk)