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Economic growth slowed by falling exports

Economic activity decreased in the June quarter by 0.3 per cent, said Government Statistician Len Cook when releasing the latest Gross Domestic Product figures. For the year to June, the economy grew by 0.6 per cent, the result of consistent growth in the first three quarters.

A marked drop in export volumes, which fell 4.8 per cent, has contributed to the downturn in the economy. While there was a lift in internal demand, this was mainly the result of a significant build up in stock levels. Household spending was flat and much of business investment, which rose slightly, was met from imports contributing to the rise in import volumes. The increased level of imports, up 2.7 per cent for the quarter, has exacerbated the negative effect on GDP resulting from the decrease in export volumes.

The fall in exports is consistent with reduced activity in several industries, most noticeably agriculture, fishing, forestry, mining and manufacturing. There were, however, also downturns in energy, construction, transport and financial and business services. For the June quarter the Household Labour Force Survey reported hours worked, seasonally adjusted, fell slightly by 0.1 per cent.

The most noticeable effect of the drop-off in export volumes has been recorded in primary foods manufacturing, which has made the major contribution to the fall in manufacturing as a whole. This, combined with decreased activity in energy and construction, has resulted in activity in goods production industries falling this quarter to their lowest level in 19 quarters. The lacklustre result recorded across a range of industries, in particular farming, fishing and gas extraction for electricity generation, also appears to be the ongoing effect of a second season of drought and changing climatic conditions.

Business investment on fixed assets rose for the third quarter in a row, up 0.7 per cent. In the latest quarter, spending was strongest for imported transport equipment, specifically ships. Investment on machinery and equipment also rose but to a lesser extent. Investment on buildings and infrastructure, however, fell this quarter. There was a strong lift in stock levels this quarter, up by $476 million, after a flat result last quarter.

Household spending showed no change this quarter, after recording consistent growth over the previous four quarters. Spending in the June quarter was 1.7 per cent higher than the same quarter a year ago. While spending on services increased this quarter, this lift was offset by falls in spending on both durables and non-durables. Investment in new housing rose for the third consecutive quarter. The turnaround in housing investment in the December 1998 quarter coincided with mortgage interest rates being at their lowest in more than two decades. Interest rates have remained consistently low over the last three quarters.

The fall in export volumes was the result of a sharp drop in the exports of goods, down 6.4 per cent. The largest contributors to the decrease were meat, dairy products and seafood with falls also being recorded for logs and wool. In contrast, exports of services rose slightly contributing to a lift in total exports for the June year of 4.4 per cent. In contrast to exports, import volumes increased for the fourth successive quarter resulting in the volume of imports being 12.2 per cent higher than the previous June quarter. The largest contribution to the lift in volumes resulted from the increased capital investment in large transport equipment items.

The expenditure-based measure of GDP, released concurrently with the production-based measure, recorded no change for the June quarter.

The GDP implicit price deflator rose 0.8 per cent over the June year. This is a broad measure of the overall price change for final goods and services produced in New Zealand.


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