Construction slump slows GDP

A fall in construction activity contributed to a slowdown in New Zealand’s economy in the three months to March.

Friday, June 22nd 2018, 2:40AM

by Dan Dunkley

Residential, non-residential and other construction fell 1% in the quarter to March, as the overall economy grew by a lacklustre 0.5%. Leading economists said the figures were a troubling sign for the country. The Reserve Bank and Treasury had both forecast 0.7% growth for the period.

The figures did not impress economists at the major banks. ANZ chief economist Liz Kendall said 0.5% GDP growth meant New Zealand’s economy had grown “a bit below trend”. She said it was likely the country’s economy would “struggle to achieve strong growth rates from here”.

The slowdown could boost borrowers, however, with interest rates likely to remain on hold for a longer period. ANZ said it believed the lacklustre growth would impact the Reserve Bank’s thinking. Kendall added: “In the current climate interest rates will remain on hold for some time yet.”

ASB was slightly more upbeat about the country's growth prospects. The bank’s economists said they “expect stronger growth in Q2” as forward looking indicators suggest the Q1 weakness was "temporary". The bank believes there will not be an OCR rate increase until “at least August 2019”, in light of Thursday's data.

Meanwhile, Westpac’s Michael Gordon said the New Zealand economy had “lost some momentum in recent times, with growth in the last three quarters barely exceeding population growth.” He said the subdued growth could be partly attributed to “uncertainty about the new government’s policies”.

Gordon described the slowdown in construction as the “biggest drag” on the economy, something that was exacerbated by the end of rebuilding after the Kaikoura earthquake.

Tags: OCR OCR forecasts research Reserve Bank