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Internal Demand Maintains Economic Growth

Internal Demand Maintains Economic Growth

Economic activity increased 0.6 percent in the March 2005 quarter, Statistics New Zealand said today. This followed increases of 0.3 and 0.6 percent in the December and September 2004 quarters, respectively. Growth this quarter resulted from a lift in internal demand (up 1.3 percent), which was partly offset by a fall in export volumes (down 2.6 percent). In the year ended March 2005, the economy grew 4.2 percent, up from 3.6 percent growth in the March 2004 year.

This quarter, internal demand was sustained by a further lift in household spending and business investment. Household spending continued to be buoyant (up 1.8 percent), following a 1.1 percent rise in the December quarter. Most items of household expenditure increased this quarter. Spending on non-durable goods rose 1.3 percent, with retail food the main contributor, while spending on services and durables were both up 0.9 percent. Also contributing to the lift this quarter was increased expenditure overseas by New Zealand residents (up 1.5 percent). Overseas spending by New Zealanders was up 22.2 percent for the March 2005 year, a key contributor to the 5.8 percent lift in annual household expenditure.

Residential building investment recovered in the March 2005 quarter, increasing 4.4 percent, following two consecutive quarterly falls. For the March 2005 year, new housing investment was up 2.0 percent. However, this is quite modest when compared with the 2004 and 2003 March years when there was strong growth of 15.8 percent and 22.6 percent, respectively. Business investment in fixed assets rose 3.6 percent, the third consecutive quarterly increase, and was up 11.4 percent for the March 2005 year. There was a major lift in investment in plant, machinery and equipment this quarter (up 9.3 percent), while investment in non-residential buildings (up 3.9 percent) and infrastructure (up 1.8 percent) also rose.

Partly offsetting this quarter's increase in internal demand were lower export volumes, with merchandise exports down 1.5 percent and services down 5.8 percent. The fall in exports was largely the result of a marked drop in exports of wood and wood products (down 15.0 percent), and other manufactured goods (down 12.7 percent). Dairy exports fell 1.1 percent this quarter, and were down 11.6 percent for the March 2005 year, reflecting the slow start to the dairy season. The drop in services exports was largely due to a 10.7 percent drop in spending by overseas tourists. However, for the March 2005 year overseas tourism spending was up 6.0 percent.

The rise in internal demand was partly met by imports which rose 1.0 percent this quarter and were up 13.3 percent for the March 2005 year. Imports of services were up 1.5 percent for the latest quarter and 11.2 percent for the year, strongly influenced by the increased spending of New Zealanders travelling abroad.

In the March 2005 quarter, economic growth was largely due to increased activity in the service industries (up 1.0 percent). Most service industries recorded increased activity this quarter, and for the March 2005 year activity in this group was up 4.7 percent. Annual activity in the distribution industries has been strong. Wholesale trade, although only increasing 0.3 percent this quarter, was up 6.3 percent for the March 2005 year. Retail trade recovered this quarter (up 1.9 percent), following a flat December 2004 quarter when there was a drop in in-bound tourists. For the March 2005 year, retail activity was up 6.8 percent, reflecting high household expenditure and increased tourism spending.

In contrast to the growth in the service industries, activity in primary industries rose marginally this quarter (up 0.3 percent), while goods-producing industries were flat. Because of its larger contribution to the economy, a 1.5 percent decrease in manufacturing activity more than offset a 4.5 percent increase in construction.

The expenditure-based measure of gross domestic product (GDP), released concurrently with the production-based measure, recorded a 0.4 percent increase for the March 2005 quarter compared with the December 2004 quarter. Real gross national disposable income (RGNDI), which is a measure of the volume of goods and services New Zealand residents have command over, increased 4.2 percent in the March 2005 year.

Ian Ewing
Acting Government Statistician

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