Published 23 December 2009

New Zealand economy continues to recover…

Economic activity increased by 0.2% in the September 2009 quarter following a 0.2% increase in the June 2009 quarter (Fig 1). Following five quarters of contraction, growth in the June and September 2009 quarters confirm the New Zealand economy is recovering, albeit tentatively. Due to revisions of historical data the cumulative fall in economic activity during the recession (December 2007 - March 2009) is now 3.3% compared to 2.9% previously. This makes it similar to the 1991/92 recession during which the economy contracted 3.3%. On an annual average basis, real GDP decreased 2.2%, the largest fall in the currently published GDP series which began in 1987 (Fig 2).

Figure 1: Quarterly Economic Growth

Data table for Figure 1

Figure 2: Annual Average Economic Growth

Data table for Figure 2

Growth over the quarter was driven by increases in primary industries (up 3.9%) and service industries (up 0.4%). Within the primary industries, activity in forestry & logging rose by 3.9%, fishing by 12.2% and agriculture by 0.9%. Mining also grew strongly (up 11.1%) as a result of increased exploration activities and the Maari oil field reaching full production. Within the service industries, real estate & business services grew strongly (up 2.2%) due to increased demand for a range of business services including legal, accounting and technical services. Transport & communication services rose 1.0% while health & community services were up 0.5%.

Household consumption expenditure rose by 0.8% over the quarter following a 0.4% increase in the previous quarter. This is the strongest rise since early 2007 and comes on the back of tax cuts, low interest rates and increased consumer confidence.

…but there continues to be a number of areas of weakness

As in previous quarters, there were significant declines in manufacturing, construction, and wholesale trade.  Construction activity was down 4.4% while manufacturing activity fell 1.9%.  They are now respectively 19.2% and 15.5% below their December 2007 peaks. Activity in the electricity, gas, and water industry also declined this quarter (down 1.6%).  Wholesale trade fell by 1.6%, the seventh consecutive quarterly decline for the industry, while central government activity was down 1.7%. 

The recovery so far has been mild

The recovery in the New Zealand economy has so far been subdued, however it is expected to pick up and become more widespread in 2010. Leading indicators, such as consumer and business confidence, continue to point to relatively strong growth next year. The average expectation in the latest NZIER Consensus Forecasts is for the economy to grow by 2.8% in the year to March 2011. With the labour market lagging economic activity, the unemployment rate is expected to continue to rise over the short term, reaching a peak of around 7% in the first half of 2010.