New Zealand saw an unexpected contraction in GDP in the September quarter, recording a -0.20% decline from the June quarter.
On a year on year basis, GDP was up 1.50% which was lower than consensus estimates for 1.80% growth. Much of the weakness was due to a minor loss of momentum and the impact of the Christchurch earthquake. However there are several reasons why this will likely be the low point as 2011 is set to be a strong year for economic growth in New Zealand.
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Digging into the details on an expenditure approach, the chart below shows the breakdown, with residential buildings have the most significant negative impact in the quarter, and with net exports also having a negative impact (i.e. through higher imports and lower exports).
Government expenditure also decreased as the government looked to cut costs, having recently been put on negative credit watch by Standard & Poor's. The residential buildings aspect is likely to be a positive contributor over the next year as rebuilding efforts take place in Christchurch. Broadly this effect will add to overall GDP growth over the medium term.
On a sector basis, the most significant detractor was fishing, forestry and mining (mining will likely also fall somewhat as the Pike river coal mine disaster has seen the mine closed for the foreseeable future), with construction and manufacturing also falling. Slightly offsetting that was transport and communication and wholesale trade, which is a positive sign for the broader economy. The retail, accomodation and restaurants sector will likely receive a significant boost through 2011 as New Zealand hosts the Rugby World Cup (go the all blacks!).
So overall it was a negative result, but this was largely due to the short-term impact of the earthquake. Going into 2011 the New Zealand economy will likely pick up steam as the impact of the post-earthquake rebuilding, Rugby World Cup, still relatively loose monetary policy, and a general gathering of momentum underpin the recovery.
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