Buoyed largely by the manufacturing sector, GDP rose 0.8 per cent in the March 2011 quarter, Statistics New Zealand announced today. This follows a 0.5 percent increase in economic activity in the December 2010 quarter.
Growth far outstripped market median and RBNZ expectations of 0.3 percent.
In addition, Statistics New Zealand's estimate for Q4 growth has also been revised up to 0.5 percent (from 0.2percent).
"The strong growth in the latest quarter despite the February 22 earthquake was mainly due to manufacturing," national accounts manager Rachael Milicich says.
"While some businesses in Christchurch were adversely affected, the vast majority were able to continue operating, and the earthquake resulted in some activity that would not normally have taken place."
The dollar rose following the result, increasing to around 0.80 US cents within half an hour of the data release to touch over 0.85.
ASB economist Christina Leung now expects the RBNZ is likely to lift the OCR in December. "The RBNZ can be very confident of the strength in the underlying economy."
Finance minister Bill English says today's result shows the resilience of Cantabrians and the New Zealand economy as a whole.
“It’s pleasing to see growth picking up pace, after a difficult few years going right back to the domestic recession that started in early 2008,” English says.
“The [Canterbury] rebuild, along with near record commodity export prices, interest rates at 40-year lows, improving business and household confidence, lower household debt and the upcoming Rugby World Cup, give us confidence in the outlook for New Zealand’s economy."
Statistics New Zealand is confident in its analysis, saying alternative data sources for some components of GDP were investigated and analysed for the March quarter. Extra information was sought from nearly 800 Canterbury businesses on the value of their stock lost in the earthquake, for example, and losses due to the earthquake were removed from the calculation of GDP to reflect inventory changes due to economic factors only.
While manufacturing led the charge, rising 3.6 percent, significant movement was also seen in wholesale trade, which saw its sixth consecutive increase (1.5 percent). The real estate and business services category was up 1 percent.
The most significant fall was seen in construction activity, down 4.3 percent due to decreases in residential and non-residential building.
The increase in manufacturing is supported by a positive outlook in the sector, as seen in ExportNZ’s National Exporter Outlook Survey released today.
And according to the BNZ-BusinessNZ Performance of Manufacturing Index, it's tipped to see an ongoing rate of expansion.
BusinessNZ’s executive director for manufacturing Catherine Beard says this can be partly attributed to what’s happening across the Tasman.
“While issues such as the ongoing effects from earthquakes and the economic downturn are still mentioned, the Australian situation is as least providing a valuable market opportunity for businesses looking to broaden their sales base.”
The expenditure measure of GDP rose 0.6 percent in the March 2011 quarter, but the production measure of GDP (up 0.8 percent) is the preferred measure, being less volatile. GDP increased 1.5 percent in the year ending March 2011, while the expenditure measure rose 1.8 percent.
Says English: “We’re confident this recovery will be built on a sound platform of higher savings, exports and productive investment, rather than the excessive borrowing, consumption and government spending of much of the past decade.
“That will remain the focus of the Government’s economic programme."