Household Spending and Business Investment Boost
18 November 2004
National Accounts: Year ended March 2004 —
Household Spending and Business Investment Boost Economic Growth
Gross domestic product (GDP) in current prices increased 6.1 percent in the year ended March 2004, according to Statistics New Zealand. This follows a 4.8 percent increase in the previous March year. When the effects of inflation are removed, there was an increase of 3.6 percent in constant price GDP for the March 2004 year. Internal demand increased 8.0 percent. Higher household consumption expenditure (up 6.2 percent), further investment in new residential housing (up 24.5 percent), increased business investment in fixed assets (up 8.8 percent) and a further build-up in inventories of $1,127 million all contributed to the increase in internal demand. Increases were also recorded in central and local government spending (up 6.7 and 7.7 percent, respectively).
The buoyant economy was reflected in the lift in household and business incomes. Compensation of employees was up 7.0 percent, following a 6.4 percent lift in the March 2003 year. Both numbers employed and earnings increased during the March 2004 year. Gross operating surplus increased 5.2 percent in the March 2004 year. When the provision for consumption of fixed capital is deducted, net operating surplus grew 5.7 percent. There was an improvement in the profitability of agriculture in the March 2004 year, with farming incomes estimated to have risen by 3.0 percent. This follows the significant fall in primary producer incomes last year, the result of a stronger New Zealand dollar and a fall in dairy commodity prices. Business incomes in the rest of the economy also rose in the latest year, moderated by a fall in the profitability of manufacturing industries.
National disposable income, which measures the total income available to New Zealanders from all sources, both domestic and overseas, rose 6.5 percent. This follows a 5.1 percent increase in the March 2003 year. Although final consumption expenditure rose, national saving increased to $7,525 million in the March 2004 year. Similar levels of national saving have been sustained since 2002.
Despite the relatively high level of national saving, much of the increase in investment was financed externally. Net borrowing from the rest of the world increased from $2,832 million (2.2 percent of GDP) to $5,659 million (4.1 percent of GDP). For the second consecutive year, the strengthening New Zealand dollar had an impact on the external account, with the current account deficit rising from $4,331 million to $6,421 million in the March 2004 year. A key factor was the fall in the merchandise trade balance, which moved from a surplus of $713 million in the March 2003 year to a deficit of $1,028 million, as export receipts fell to $29,102 million (down 5.2 percent). The strengthening New Zealand dollar, partly offset by the benefits of higher commodity prices overseas, reduced export receipts for primary products.
The stronger New Zealand dollar also reduced the cost of imports. While imported goods volumes were up strongly (by 11.4 percent), payments (at $30,130 million) were virtually unchanged from the March 2003 year. The surplus on trade in services fell in the March 2004 year to $1,215 million.
Brian Pink Government Statistician