New Zealand: Extreme drought causes economy to decelerate in Q2
September 19, 2013
In the second quarter, GDP increased a seasonally-adjusted 0.2% over the previous quarter, which was below the revised 0.4% expansion observed in the first quarter (previously reported: +0.3% quarter-on-quarter). The second quarter expansion was broadly in line with market expectations but undershot the Central Bank's estimate of a 0.4% increase. Compared to the same quarter last year, GDP increased 2.5% in Q2 (Q1: +2.7% year-on-year).
According to Statistics New Zealand, "the drought early this year influenced falls in agriculture and manufacturing this quarter, but this was balanced by strong growth in the service industries." Accordingly, agriculture plunged 4.8% in Q2 (Q1:-4.3% qoq) and the manufacturing sector fell 0.1% in Q2 (Q1: +0.4% qoq). Conversely, services increased 1.0% in Q2, faster than the 0.6% expansion observed in Q1.
On an expenditure basis, GDP grew 0.1%, which was below the 0.3% expansion in Q1. The slowdown mainly reflects a deterioration in the external sector, as exports of goods and services plummeted 5.9% in Q2 (Q1: +2.5% qoq), while imports grew 1.3% (Q1: +2.2% qoq). As a result, the external sector's net contribution to overall economic growth swung from zero percentage points in Q1 to minus 2.5 percentage points in Q2. Positive news came from private consumption, which grew 1.5% over the previous quarter (Q1: +0.6% qoq) and government spending rebounded from a 0.2% fall in Q1 to a 0.5% expansion in Q2. Fixed investment accelerated and increased 3.8% over the previous quarter (Q1: +1.9% qoq).
In September, the Reserve Bank of New Zealand (RBNZ) predicted that the economy will expand 0.8% in Q3 and 1.0% in Q4, while the Bank sees overall economic growth at 2.8% in fiscal year 2013 (ending March 2014). For fiscal year 2014 (ending March 2015), the RBNZ sees economic growth at 3.0%. FocusEconomics Consensus Forecast panelists expect the economy to grow 2.7% this year, which is unchanged from last month's forecast. For 2014, the panel sees the economy expanding 2.9%.
Author: Ricardo Aceves, Senior Economist