Economy gets boost from bubbling building sector

ASB Bank economist Jane Turner

GDP running above trend, rising real disposable incomes, strong manufacturing and export growth - what's not to like?

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New Zealand's booming construction sector remains one of the main pillars for the country's economic growth, benefiting from an expanding population in need of housing and spurring activity in other industries.

Government data today showed the construction sector grew 5 percent in the three months ended June 30, making the biggest contribution to a 0.9 percent expansion in gross domestic product. That was the second quarter where it grew at a 5 percent pace, and the level of activity in the building sector was 11 percent higher than the same period a year earlier.

ASB Bank economist Jane Turner said the amount of work taking place exceeded the level of building consent issuance, suggesting the backlog was such that there didn't need to be an increase in intentions to translate into more activity.

"If you took away construction we'd probably have quite a softer economic outlook," Turner said. "We do expect that construction impetus to continue for some time, particularly in Auckland where the outstanding backlog for housing demand is still very large and a long way from being met."

The 2016 National Construction Pipeline Report, prepared by the Building Research Association of New Zealand and construction industry consultancy Pacifecon, estimates building work will peak next year at $37 billion, with Auckland dominating activity through the report's six-year horizon to 2021.

ASB's Turner today said the construction sector strength was broad-based across the country, though she expects it will slow in regional areas over the next year, whereas Auckland's need will persist for much longer.

"That is generating support to other sectors of the economy - manufacturing, wholesale, transport, all these industries benefit and housing demand has flowed through to real estate services," she said.

Today's GDP data showed an 11 percent jump in non-metallic mineral product manufacturing, which covers building products, its biggest recorded quarterly increase, while the increased housing demand stoked a 1.3 percent gain in rental, hiring and real estate services activity.

That outlook has also been embraced by investors, with building products and construction firm Fletcher Building the best-performing stock on the S&P/NZX 50 index, gaining 44 percent so far this year. Fletcher shares were up 1.7 percent to $10.58 today.

The other arm to New Zealand's growth this year has been record levels of tourism and inbound migration, which helped lift retail trade and accommodation services activity 1.9 percent in the quarter.

On an expenditure measure, GDP rose 1.2 percent in the quarter, driven by a 1.9 percent increase in household spending, the biggest quarterly gain since June 2009. On a per-capita basis, GDP rose 0.5 percent in the quarter, matching the period's population growth, and was up 0.7 percent on an annual basis.

(BusinessDesk)

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