NZ economy grows 1.4% in 3Q, beating estimates, as dairy boom drives activity

New Zealand's economy grew faster than expected in the third quarter as the country's dairy sector recovered from drought at the start of the year, driving increased activity. The kiwi dollar climbed against the Australian dollar.

Gross domestic product grew 1.4 percent to a seasonally adjusted $37.99 billion in the three months ended Sept 30, from a revised pace of 0.3 percent growth in the June quarter, according to Statistics New Zealand. That beat the 1.1 percent expansion predicted by a Reuters survey of economists and the Reserve Bank's forecast. Annual growth was 2.6 percent, and GDP was up 3.5 percent from the same quarter a year earlier.

Agriculture, forestry and fishing grew 14 percent to $1.98 billion in the quarter, after dairy recovered from two quarters of contraction, while dairy product manufacturing helping drive a 1.5 percent expansion in broader manufacturing activity.

"Dairy farming has really bounced back from the drought this year," said acting national accounts manager Steffi Schuster in a statement. "The increase in agriculture is the largest in more than 25 years, as good weather boosted production well above the weak June quarter."

Chinese demand for milk powder has been a major driver in pushing up dairy prices, with the country's terms of trade at a 40-year high, and farmers can expect a record payout from Fonterra Cooperative Group this season, despite the dairy exporter keeping the forecast on hold due to a mismatch in its production capacity.

The kiwi dollar rose to 82.40 US cents from 82.21 cents immediately before the figures were released. The local dollar jumped to a new five-year high of 93.04 Australian cents and was recently at 92.93 cents from 92.66 cents before the announcement.

The acceleration in economic activity comes as analysts grow more bullish about New Zealand's prospects for growth, with the Reserve Bank signalling this month that it is ready to start hiking interest rates to keep on top of inflation as the recovery gains momentum.

Yesterday's release of the December ANZ Bank Outlook survey showed firms are more optimistic about the strength in the economy than they've been for 15 years, and more than half the companies surveyed expect their own activity to expand in the coming year.

The drought at the start of the year kept a lid on agricultural activity through the first half of the year, though Statistics NZ said its impact, especially for dairy, appears to have been short-lived. Growth in the agriculture, forestry and fishing sector shrank an annual 3.7 percent in the September quarter.

Information media and telecommunications grew 2.2 percent to $2.63 billion due to increasing activity within the sector, and was up 2.8 percent on the year. That was the biggest contributor to a 0.4 percent quarterly expansion in the county's services industries, which makes up most of the local economy.

Construction shrank 1 percent to $2.04 billion in the quarter, the first contraction since March 2011, with declines in heavy and civil engineering and non-residential building offsetting gains in residential building. The sector was still up 14 percent on an annual basis.

Investment in residential housing climbed 8.5 percent in the quarter, while non-residential shrank 6 percent and investment in other construction slumped 29 percent.

Business investment, which strips out spending on residential housing, increased 0.9 percent, and was up 3.6 percent on the year.

Gross fixed capital formation rose 3.1 percent, and inventories were built up by $770 million, the biggest since the series began in 1987.

Household consumption expenditure increased 0.4 percent with increased spending on durable goods, and was up an annual 3 percent.

The expenditure measure of GDP grew 1.1 percent for annual expansion of 2.7 percent.

Real gross national disposable income grew at a quarterly pace of 2.9 percent, and was up an annual 3.2 percent.

Today's release is the first to capture revisions to the way Statistics NZ measures GDP, with different methods to calculate the IT and communications sector and more robust measure of the Canterbury rebuild.

(BusinessDesk)