Forestry helps economy grow at fastest pace in three years

December quarter GDP growth of 1.5% almost twice the pace of expansion predicted by the Reserve Bank.

The New Zealand economy grew at the fastest quarterly pace in three years in the tail end of last year as demand for forestry exports underpinned gains in the primary sector. The kiwi dollar climbed on the figures.

Gross domestic product grew 1.5 percent to $36.81 billion in the three months ended December 31, from a 0.2 percent pace in the September period, according to Statistics New Zealand.

That is almost twice the 0.8 percent pace of expansion predicted by the Reserve Bank in its latest forecasts published last week and the fastest pace since December 2009.

The economy grew at an annual pace of 2.5 percent, the highest annual GDP growth since March 2008. Activity in the December quarter was 3 percent higher than the same period in 2011.

The New Zealand dollar jumped to 82.58 US cents from 82.23 cents immediately before the figures were released. The trade-weighted index rose to 76.08 from 75.79 and the kiwi climbed to 79.57 Australian cents from 79.18 cents.

Primary industries activity grew 3.2 percent in the December period, underpinned by a 9 percent lift in forestry, and is at the highest level since the series began in June 1987. Those gains offset a fall in dairy production, which was reflected in a decline in dairy product exports.

Primary industries grew 9.4 percent on an annual basis, led by a 15 percent gain in agriculture from favourable season at the start of the year.

Drought conditions

The strength in the primary sector comes before official figures start showing the impact of the drought conditions across New Zealand's North Island. The arid climate has seen dairy prices surge on dwindling supply, and the potential cost of the drought has been put as high as $2 billion.

Statistics NZ says the impacts will not show up until more comprehensive data is known. The Reserve Bank trimmed 0.2 to 0.3 of a percentage point from its first half GDP forecasts to account for the drought.

Retail trade and accommodation grew 2.3 percent in its biggest quarterly gain since March 2007, with increased spending across the board. It has expanded 3.5 percent on an annual basis.

Construction grew 1.8 percent in the quarter, its fifth straight gain, on the strength of heavy and civil engineering. The sector has grown 6.1 percent annually, though is still below it speak in June 2010.

Manufacturing was the only sector to contract in the quarter, shrinking 0.5 percent. The decline was its second in a row, the first time it has reported two consecutive contractions since September 2010. It was put down to an 8.7 percent fall in petroleum, chemical, plastic and rubber products manufacturing.

The expenditure measure of GDP, which measures the final purchases of locally produced goods and services, grew 1.4 percent in the quarter, and was up 3 percent annually.

Household consumption grew 1.6 percent in the quarter, the biggest gain in six years, with increased spending across the board. Spending was up 2.3 percent in the year.

Gross fixed capital formation, which is made up of business investment and residential building investment, grew 2.2 percent in the period, with a 2 percent gain in residential investment and a 2.2 percent lift in business investment. GFCF grew 6.6 percent annually.

Inventories were run down by $131 million in the quarter, after a revised build-up of $389 million in the September period. The run-down came from falling manufacturing and agriculture inventories.


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