UPDATE: Tourism props up sagging NZ economy in third quarter

UPDATED: An influx of big-spending tourists helped revive New Zealand's economic activity in the third quarter of the year, making up for subdued household consumption and a moribund primary sector through the middle of the year. 

Government data today showed gross domestic product grew 0.9%  in the three months ended September 30, as the service sector, which accounts for about two-thirds of the economy, expanding by the same amount. GDP grew 2.3% from the same quarter a year earlier. 

Nine of the 11 service industries grew in the quarter, as a surge in visitor numbers taking advantage of the decline in the currency made up for uneven domestic demand. Non-resident expenditure grew 1.3% in the quarter, more than twice the 0.6% expansion of household spending. 

"Without the tourism sector, growth would be pretty anemic," said Darren Gibbs, chief economist at Deutsche Bank New Zealand in Auckland. "With this kind of population growth in terms of people moving to this country permanently and the transient population growth as we're taking in these tourism numbers, there's going to need to be a lot of investment in hotels and infrastructure." 

Real gross national disposable income, which measures the purchasing power of households, grew 0.3% in the quarter, a level Gibbs said was "pretty appalling." 

"People have been a little bit complacent on just how well the economy is performing in a structural sense," he said. "With the amount of resources getting thrown into the economy – people and capex – we shouldn't be growing at two-point-something." 

The acceleration in economic growth comes after a moribund middle of the year when production stalled in the face of sinking global dairy prices. That spurred the Reserve Bank to embark on an easing cycle in June, cutting the official cash rate four times to reach 2.5% in last week’s review and projecting an unchanged policy for the next three years. 

A rebound in manufacturing helped spur production in the third quarter, led by gains in meat product manufacturing and in spite of a dip in dairy product activity. 

On an expenditure measure, GDP grew 1.2% in the quarter, as investment in air transport drove up capital investment 2.7%, residential building grew 0.9% and household spending expanded 0.6%. Business investment, which excludes residential housing, grew 2.6% in the quarter.

Expenditure expanded 3.5% on an annual basis, as residential construction grew 6.2%, and exports climbed 9.5% in a period where the kiwi dollar depreciated against most of its trading partners. That included a 0.5 percentage point upward revision to the June quarter to 0.7% after the agency changed its benchmarks and bringing the expenditure measure more in line with production. 

Construction has been a major contributor to the economy in recent years as Christchurch gets rebuilt after the 2010 and 2011 earthquakes, and efforts are made to address the housing shortage in Auckland. On a production measure, construction shrank 2.9% in the quarter as heavy and civil engineering work was scaled back. The sector contracted 0.1% from a year earlier.

Agriculture, forestry and fishing were flat in the quarter, with dairy production down in the period.

(BusinessDesk)