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Economic Activity Increases 0.6 Percent

Economic Activity Increases 0.6 Percent

Economic activity increased 0.6 percent in the December 2003 quarter, following increases of 1.6 and 0.3 percent in the September and June 2003 quarters, respectively, according to Statistics New Zealand. For the year ended December 2003, the economy grew by 3.5 percent. Gross domestic product (GDP) per capita increased 1.8 percent in the December 2003 year, following a 2.8 percent increase in the previous December year.

Growth resulted from increases in both internal and external demand this quarter. Increased business investment (up 3.7 percent) and higher consumer spending (up 0.8 percent) contributed to the lift in internal demand (up 0.7 percent) for the December 2003 quarter. External demand was also up this quarter, largely as the result of increased dairy exports and in-bound tourism.

Major contributions to the increase in household spending this quarter came from expenditure on non-durable goods and services, up 3.8 and 1.2 percent, respectively. Also contributing to the lift this quarter, was increased expenditure overseas by New Zealand resident households, up 22.0 percent, following an 11.8 percent increase in the September 2003 quarter. Spending on durable goods was down, the first decline in 12 quarters. In the latest quarter, falls were recorded in expenditure on used vehicles, furniture and appliances. However, annual expenditure on durable goods remains strong, up 8.5 percent for the December 2003 year.

The increase in business investment this quarter was largely due to a rise in spending on plant, machinery and equipment, up 10.6 percent, following a rise of 0.4 percent in the September 2003 quarter. Much of this increase was met from imports. Investment in new housing fell 3.1 percent this quarter, following six consecutive quarters of growth. Despite the latest fall, new housing investment for the December 2003 year remains strong, up 19.6 percent.

Export volumes rose this quarter, with exports of both goods and services rising, up 4.3 and 7.8 percent, respectively. Dairy exports contributed significantly to the rise in merchandise exports, rising 24.6 percent this quarter. The rise in exports of services reflects a strong lift in in-bound tourism following three quarterly declines.

Import volumes rose 4.6 percent this quarter, following increases of 1.0 and 5.7 percent in the September and June 2003 quarters, respectively. The lift this quarter was largely due to an increase in imports of machinery and electrical equipment, up 11.1 percent. Imports of services were up 3.4 percent, strongly influenced by the increased spending of New Zealanders travelling abroad, up 21.0 percent.

This is the second quarter that expenditure on overseas travel by New Zealanders has grown strongly, with expenditure up 10.7 percent for the December 2003 year.

Industry production was mixed this quarter. Growth continued to occur in the service industries, which rose 1.5 percent this quarter, and is now 3.5 percent higher than in the year ended December 2002. Wholesale trade increased 3.2 percent in the December 2003 quarter and retail activity was up 1.6 percent, reflecting a further rise in domestic demand from resident households and tourists. Transport and communication services were up 1.6 percent, with lifts in road freight and air transport.

Activity in goods producing industries was virtually unchanged, with manufacturing activity flat. There was a lift in electricity, gas and water value added, up 3.0 percent. Although total electricity generation was virtually unchanged from the previous quarter, a shift to hydro from the more expensive thermal generation saw electricity value added rise. Following six consecutive quarters of strong growth, construction activity declined 2.0 percent this quarter. Residential building activity fell, coming off the high September quarter result.

Nevertheless, residential building construction activity is well above the level recorded in the December 2002 quarter, up 13.0 percent. Non-residential construction was down 5.9 percent this quarter.

Activity in primary industries decreased 2.0 percent this quarter. Agriculture production recorded a marginal increase of 0.3 percent, largely due to a further lift in dairy production, up 1.3 percent. There were falls in forestry and mining activity, reflecting decreases in export log and saw log removals and a drop in extraction as a result of the fall in demand for thermal electricity generation.

The expenditure-based measure of GDP, released concurrently with the production-based measure, recorded a 0.7 percent increase for the December 2003 quarter when compared with the September 2003 quarter.

Ian Ewing

Acting Government Statistician

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