March GDP weak as expected, NZ future is strong

Statistics New Zealand this morning confirmed market expectations for a weak economic start to the year, with the production-based measure of gross domestic product contracting 0.3 per cent on-quarter in the three months to March 31, Finance Minister Michael Cullen said today.

The pace of annual average growth in GDP for the 12 months to March 31 stood at 3.0 per cent, compared with 3.1 per cent in the 12 months to December 31, 2007.

"Economic commentators have known since late last year that the start of 2008 was likely to be a period of disappointing growth on the back of the serious international economic situation and local drought.

"After the spectacular employment and economic growth of the past eight years, we started this year having to adjust to very real challenges arising from the combination of slowing global growth, rising international oil and food prices and rising credit costs in the wake of the 'credit crunch' in the United States.

"These challenges are not of New Zealand's making, but the positive reality is that New Zealand's economic outlook is very good.

"The positives include the fact that we entered this period with one of the lowest unemployment rates among the rich, developed nations which means we as a society are better placed than many others during this temporary, externally-driven shock to our economy.

"The positives include the growth-enhancing flow-on effects expected to flow from the Government's decision to cut the company tax rate on April 1.

"The positives include the Budget's strong investment in social services that take effect from July 1, and the extension of tax relief for families and the reduction in personal income tax rates, that take effect on October 1," Dr Cullen said.
Many commentators also forecast that New Zealand's terms of trade are on the up because the demand for our farm-based exports are anticipated to steadily rise on the back of rising demand in emerging economies, particularly in Asia.

"So while the March quarter GDP data today are disappointing, it is important to remember that this is a temporary disappointment driven by an unusual set of negative overseas economic developments, but that New Zealand's medium-term economic and social prospects are very healthy and strong," Dr Cullen said.

ENDS

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