Weak Q1 growth surprises ASB
(25 June 2013 – New Zealand) Weaker than expected telecommunications and transport activity as well as the ongoing impact of the drought has resulted in low first quarter GDP growth of 0.3 percent in New Zealand.
ASB Bank said the slower growth was weaker than market expectations, from the bank’s perspective, the key downside surprises were in weaker than expected transport and warehousing activity as well as telecommunications activity.
"We had expected the drought would have boosted transport and warehousing activity in Q1 given the higher need to transport feed, but this does not look to be the case," ASB said.
The 3.1 percent decline in telecommunications activity was driven by lower call minutes.
Manufacturing activity (excluding the primary sector) was also softer than expected, reflecting declines in metal product and machinery manufacturing.
On the expenditure side, the weaker than expected outcome was driven by weak business investment, particularly in plant and machinery and transport equipment, and ties in with the weakness in domestic equipment manufacturing.
"However, there are clear signs that earthquake rebuilding is gathering momentum, with the 5.5 percent increase in construction in Q1 driven by increased residential building and construction services in Canterbury.
"There was also a very strong 3.9 percent increase in professional, technical and administration services, which a source notes was driven by increased demand for engineering design and consulting services in Canterbury as well as Auckland.
"The increased demand for these services suggests many construction projects in the pipeline. We expect further strong growth in construction over the coming years," ASB reported.
The effects of the drought on agriculture production, primary manufacturing and electricity production were broadly in line with ASB’s expectations.
While the drought reduced milk production and hydro-electricity production, this was partly offset by increased meat processing activity as farmers brought forward livestock slaughter in the wake of the increasingly dry weather conditions.
"We expect the drought will reduce production in the June quarter and mean another modest increase in GDP, given the declines in milk production and livestock slaughter in recent months. However, the underlying growth story looks mildly encouraging, supported by stronger construction and household spending."
ASB still expects the Reserve Bank of New Zealand will first lift the official cash rate in March 2014.