New Zealand: Economy decelerates as drought offsets Canterbury reconstruction
June 20, 2013
In Q1, GDP increased a seasonally adjusted 0.3% over the previous quarter, which represents a notable deceleration compared to the 1.5% expansion observed in the preceding quarter. In addition, the slowdown exceeded market expectations that had growth decelerating to 0.5%. Compared to the same period last year, GDP slowed down from a 3.2% expansion in Q4 to a 2.4% increase observed in Q1, falling short of market expectations (+2.5% year-on-year).
The deceleration in the first quarter reflects an offsetting effect between the positive contribution to growth from the ongoing Canterbury rebuilding process and the negative impact caused by the worst drought in about 30 years in the northern part of the country. Accordingly, construction activity accelerated from a 2.1% increase in the fourth quarter to a 5.5% expansion in the first. On the other hand, agriculture swung from a 2.4% increase in Q4 to a 4.8% contraction in Q1. According to the statistical institute, "the impact of the drought showed up as expected, with lower milk production and higher slaughter numbers for the first three months of 2013". Moreover, manufacturing decelerated from a 1.0% rise in Q4 to a 0.2% increase in Q1, while the overall services category increased 0.5% over the previous quarter (Q4: +1.0% quarter-on-quarter).
On an expenditure basis, GDP also grew 0.3% in Q1, slower than the 1.3% increase recorded in Q4. The figure mainly reflects slower growth in private consumption (Q4: +1.5% qoq; Q1: +0.4% qoq) and in fixed investment (Q4: +2.4% qoq; Q1: +0.3% qoq). On the external side, exports of goods and services accelerated from a 1.4% increase in Q4 to a 2.5% expansion in Q1, while imports swung from a 0.7% drop in Q4 to a 2.3% expansion in Q1. As a result, the external sector's net contribution to overall economic growth deteriorated from plus 0.7 percentage points in Q4 to minus 0.1 percentage points in Q1.
Despite the slowdown in Q1, the economy is expected to pick up in the second half of the year, spurred by the rebuilding of Canterbury. Accordingly, the Reserve Bank of New Zealand (RBNZ) expects the economy to expand a 0.6% in Q3 and 0.9% in Q4, while the Bank sees overall economic growth at 2.8% in the fiscal year 2013 (ending March 2014). For the fiscal year 2014 (ending March 2015), the RBNZ sees economic growth at 3.3%. FocusEconomics Consensus Forecast panellists expect the economy to grow 2.7% this year, which is unchanged from last month forecast. For 2014, the panel sees the economy expanding 2.9%.
Author: Ricardo Aceves, Senior Economist