Economy beats forecasts to grow 0.6% in 2Q

BUSINESSDESK: The New Zealand economy grew at a faster-than-expected clip in the second quarter, driven by record milk production and increased building activity, while growth in the first quarter was trimmed back.

Gross domestic product grew 0.6% in the three months ended June 30, from a 1% pace in the first three months of the year, a revision from the previously published 1.1%, Statistics New Zealand says.

Growth of 0.3% had been expected in the second quarter, according to a Reuters survey.

The economy tracked as the central bank expected in the second quarter, with growth matching the estimate in last week's monetary policy statement.

The data has been subject to revisions because Statistics NZ has been overhauling its measures of GDP in a staged change. As a result, GDP growth in the final two quarters of 2011 was revised up to 0.5% apiece from 0.4%.

The second quarter figures reflect a boom season for pasture growth that resulted in record production of milk, the basis of New Zealand's exports of dairy products. Added to that, the reconstruction of earthquake-damaged Christchurch is starting to stoke building activity.

"The good pasture conditions in the first half of the year continued to contribute to economic growth this quarter," the department's national accounts manager Rachael Milicich says. "We are also now seeing evidence of a rebuild in Canterbury following the earthquakes."

Agriculture was the largest contributor to economic growth in the latest quarter, rising 4.7% and contributing to a 3.6% gain in primary industries as a whole, which mainly reflected record milk production. Forestry and logging rose 5.5%.

Construction grew 3.3%, the biggest quarterly gain since a 7.7% jump in the June 2010 quarter, driven by heavy and civil engineering such as roads and bridges, which is at its highest level since the series began in June 1987.

Residential building activity grew 6.2%, reflecting work underway in Christchurch.

Transport, postal and warehousing grew 2.7%, the largest increase since the same pace of growth in March 2008. Manufacturing grew 0.8%, after growth of 1.9% in the first three months of the year.

Electricity, gas, water and waste services fell 2.4%, the fifth straight quarterly decline.

The expenditure measure of GDP rose 0.3%, with gross capital formation rising 3.1% on increased investment in plant, machinery and equipment.

Household consumption expenditure rose 0.2%, with gains in spending on durable goods, which rose by 1%, led by purchases of cars, motorbikes and bicycles. Household spending on services and on non-durables was flat in the latest quarter.

Exports of goods and services fell 1.2%, reflecting lower shipments of primary products. Imports slid 2.9% on lower imports of intermediate goods.

Gross fixed capital formation rose 3.1%. Residential building investment grew 5.7%, following a revised 0.9% gain in the first quarter. Business investment in fixed assets rose 2.8%, up from 2% in the first quarter.

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2 Comments & Questions

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Right - no more talk of rate cuts - we should be discussing putting rates up and soon. The economy is clearly humming along nicely and yet rates are still set at emergency lows, which is clearly touching off a house price boom in Auckland. That needs to be choked off double quick.

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Keep up the good work New Zealand!!

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