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Gross Domestic Product: September 2011 quarter
Embargoed until 10:45am  –  22 December 2011
Commentary

New Zealand economy grows 0.8 percent

Gross domestic product

Gross domestic product (GDP) was up 0.8 percent in the September 2011 quarter, following a 0.1 percent increase in the June 2011 quarter. The increase in the latest quarter is the fourth consecutive quarter of growth following a decline of 0.1 percent in the September 2010 quarter.

In the September 2011 quarter, the increase in economic activity was due to rises of 0.5 percent in the services industries, 0.8 percent in the goods-producing industries, and 0.5 percent in the primary industries.

The main movements by industry this quarter were:

  • manufacturing (up 2.3 percent) – food, beverage, and tobacco manufacturing was the largest contributor
  • retail, accommodation, and restaurants (up 2.5 percent) – the largest quarterly increase since the March 2007 quarter
  • finance, insurance, and business services (up 0.6 percent) – the fourth consecutive quarter of growth
  • construction (down 2.2 percent) – now at its lowest quarterly level since the June 2002 quarter.

Graph, Gross domestic product by industry, change from previous quarter, September 2011 quarter.

Economic activity for the year ended September 2011 was up 1.3 percent when compared with the year ended September 2010. Expenditure on GDP for the year ended September 2011 was up 1.4 percent when compared with the previous year.

Graph, Gross domestic product, annual change, September 2005 to 2011.

Expenditure measure of GDP

The expenditure measure of GDP rose 1.0 percent in the September 2011 quarter. The expenditure and production measures of GDP are conceptually the same. The production measure of GDP measures the volume of goods and services produced in the economy, while the expenditure measure shows how those goods and services were used.

The main movements in the expenditure measure of GDP this quarter were:

  • household consumption expenditure (up 1.5 percent), driven by a rise in the volume of expenditure on non-durables
  • a build-up in total inventories (up $1,132 million), driven by increases in manufacturing and distribution inventories
  • export volumes of goods and services increased 0.4 percent, while import volumes increased 3.1 percent
  • general government final consumption expenditure increased 0.6 percent, driven by increases in both central and local government final consumption expenditure.  

Graph, Gross domestic expenditure by component, change from previous quarter, September 2011 quarter.

Real gross national disposable income up 2.8 percent for the year

Real gross national disposable income (RGNDI) increased 2.8 percent for the year ended September 2011, while GDP grew 1.3 percent over the same period. The difference between RGNDI and GDP for this year was mainly due to an increase in the terms of trade effect. Current price exports of goods and services increased 9.5 percent for the year ended September 2011, while prices of exports increased more than prices of imports over the same period. This relative price change is consistent with the merchandise terms of trade, which reached a 37-year high in the June 2011 quarter, as reported in the Overseas Trade Indexes (Prices): September 2011 quarter information release. A higher terms of trade means that more imports can be funded by a fixed quantity of exports.

While GDP is a measure of domestic production or economic activity over a given time period, RGNDI can be viewed as a broad welfare indicator. Net flows of income with the rest of the world are also included in RGNDI, as not all of the income generated by domestic production accrues to New Zealand residents. RGNDI measures the volume of goods and services New Zealand residents have command over. The net flows with the rest of the world are measured as changes in the terms of trade (terms of trade effect) and real gains from net investment and transfer income.

Graph, Gross domestic product and real gross national disposable income, annual change, September 2005 to 2011.

Gross domestic product by industry

Primary industries up slightly

Activity in the primary industries increased 0.5 percent in the September 2011 quarter, following a 1.7 percent rise in the June 2011 quarter. The main contributor to the latest increase was a 6.2 percent increase in mining activity, mainly due to a rise in oil and gas extraction. This is the first quarterly increase in mining activity since a 5.6 percent increase in the June 2010 quarter.

Agriculture activity declined 1.1 percent in the September 2011 quarter, due to decreases in both dairy and livestock production. This is the first decline in agriculture activity since a 2.7 percent fall in the June 2010 quarter.

Graph, Agriculture, quarterly change, September 2005 to 2011.

Forestry and logging activity declined 0.4 percent in the September 2011 quarter. This follows a decline of 0.1 percent in the June 2011 quarter. In the latest quarter, exports of forestry primary products declined (down 3.9 percent). Fishing, a small and variable industry, declined 2.4 percent.

For the year ended September 2011, primary industry activity increased 1.9 percent. The main contributor to the increase was a 4.0 percent increase in the agriculture industry.

Manufacturing drives growth in goods-producing industries

Activity in goods-producing industries increased 0.8 percent in the September 2011 quarter, following a decline of 1.3 percent in the June 2011 quarter. Manufacturing, up 2.3 percent, was the main contributor to the latest increase. Partly offsetting this increase was a fall in construction activity, down 2.2 percent.

The increase in manufacturing activity is the largest rise since a 4.1 percent increase in the December 2009 quarter. The latest rise follows a fall of 0.8 percent in the June 2011 quarter.

Graph, Manufacturing, quarterly change, September 2005 to 2011.

The largest contributors to the increase in manufacturing activity this quarter were:

  • food, beverage, and tobacco manufacturing (up 6.3 percent), which had the largest quarterly increase since the September 2002 quarter. The latest rise is partly due to increased manufacturing of meat and dairy products
  • wood and paper products manufacturing (up 3.3 percent). With exports of wood and paper products decreasing this quarter (down 1.9 percent), the latest rise contributed to the build-up in manufacturing inventories, as seen in the expenditure measure of GDP.

The different results for meat and dairy product manufacturing in GDP and the Economic Survey of Manufacturing (ESM) can be accounted for by different concepts and data sources. The Economic Survey of Manufacturing: September 2011 quarter reported a 1.9 percent decline in the volume of meat and dairy sales. The production measure of GDP uses pure volume measures to calculate value added in the meat and dairy product manufacturing industry. The ESM measures the change in sales.

Partly offsetting these increases in the manufacturing industry were falls in:

  • petroleum, chemical, plastic, and rubber product manufacturing (down 3.8 percent)
  • machinery and equipment manufacturing (down 1.8 percent)
  • metal product manufacturing (down 1.6 percent).

The decreases in machinery and equipment manufacturing, and metal product manufacturing align with a decline in exports of metal products, machinery, and equipment.

In the September 2011 quarter, activity in the construction industry declined 2.2 percent. It is now at the lowest level since the June 2002 quarter. Within construction, falls were recorded in construction trade services, non-residential building, and non-building construction (which includes roads, bridges, and other construction). The decline in non-residential building activity is reflected in lower investment in non-residential building, as measured in gross fixed capital formation in the expenditure measure of GDP.

Graph, Construction, quarterly change, September 2005 to 2011.

The Value of Building Work Put in Place: September 2011 quarter information release reported that non-residential building activity fell 4.6 percent. The value of total building work put in place in the Canterbury region followed a similar trend to that of New Zealand as a whole in the September 2011 quarter.

Activity in the electricity, gas, and water industry declined 1.0 percent in the September 2011 quarter. This is the largest fall since a 1.8 percent decrease in the March 2010 quarter. The decrease in the latest quarter was due to decreased electricity value added.

For the year ended September 2011, activity in the goods-producing industries declined 0.6 percent. This decrease compares with a 0.2 percent increase in the year ended September 2010. The latest decrease was due to a 3.7 percent decrease in construction activity. Partly offsetting this decrease was increased activity in the manufacturing and electricity, gas, and water industries, up 0.3 percent and 0.9 percent, respectively.

Service industries up for sixth consecutive quarter

Activity in the services industries increased 0.5 percent in the September 2011 quarter, the sixth consecutive quarterly rise. The latest increase follows a 0.5 percent rise in the June 2011 quarter. The retail, accommodation, and restaurants; and finance, insurance, and business services industries drove the latest rise.

Retail, accommodation, and restaurant activity increased 2.5 percent in the September 2011 quarter, following an increase of 1.3 percent in the June 2011 quarter. This quarter's rise is the largest since a 3.2 percent increase in the March 2007 quarter.

Graph, Retail, accommodation, and restaurants, quarterly change, September 2005 to 2011.

Within retail, accommodation, and restaurants, activity in retail trade (up 1.8 percent) was the main driver of the increase in the latest quarter. This rise in retail trade was driven by an increase in supermarket and grocery stores retailing. This is reflected in non-durables (up 3.3 percent) as measured in household consumption in the expenditure measure of GDP.

Included in retail trade are supermarkets, grocery stores, and other household goods retailers. Activity from spectators and participants, such as the purchase of merchandise and souvenirs related to the Rugby World Cup (RWC), is included in this industry. For information on the effects of the RWC in quarterly gross domestic product see Treatment of the 2011 Rugby World Cup in New Zealand's balance of payments and national accounts.

Increases in accommodation and restaurant activity (up 4.8 percent) also contributed to the rise in the retail, accommodation, and restaurants industry in the September 2011 quarter. This is the largest quarterly increase in accommodation and restaurants since the series started (in the June 1987 quarter) and was driven by a rise in accommodation activity.

The International Travel and Migration: September 2011 release reported 74,400 RWC visitor arrivals in the September month alone. Accommodation services used by visitors and New Zealand residents as a result of the RWC are included in the accommodation and restaurants industry.

Activity in finance, insurance, and business services also rose in the September 2011 quarter, up 0.6 percent. This follows a 1.6 percent increase in the June 2011 quarter. Driving the increase this quarter were:

  • real estate and business services (up 0.9 percent)
  • finance and insurance activity (up 0.6 percent).

Graph, Finance, insurance, and business services, quarterly change, September 2005 to 2011.

Partly offsetting the increases in the service industries were:

  • wholesale trade activity (down 0.7 percent)
  • transport and communication activity (down 0.4 percent), driven by a 1.2 percent decrease in communication services
  • government administration and defence activity (down 0.4 percent).

Graph, Wholesale trade, quarterly change, September 2005 to 2011.

The decline in government administration and defence was due to a 1.4 percent decrease in central government administration and defence activity. This is the largest quarterly fall since a 1.7 percent decrease in the September 2009 quarter. The decline in central government administration and defence in the latest quarter was due to a decline in defence activity.

For the year ended September 2011, service industries had a 1.5 percent increase in activity, compared with a 0.7 percent increase for the year ended September 2010.

Expenditure on gross domestic product up 1.0 percent

Expenditure on GDP increased 1.0 percent in the September 2011 quarter, following an increase of 0.1 percent in the June 2011 quarter.

While the production-based measure and expenditure-based measure are both official series, the production-based measure has historically shown less volatility and is the preferred series for quarter-on-quarter changes.

For the year ended September 2011, expenditure on GDP increased 1.4 percent, compared with a 1.9 percent increase for the year ended September 2010.

Largest increase in household expenditure in more than four years

Household final consumption expenditure increased 1.5 percent in the September 2011 quarter. Household consumption expenditure measures the volume of spending on goods and services by New Zealand-resident households. The September 2011 quarter increase is the largest since a 2.0 percent increase in the March 2007 quarter.

Graph, Household consumption expenditure, quarterly change, September 2005 to 2011.

The volume of durable goods purchased by New Zealand households increased 0.8 percent in the September 2011 quarter, following an increase of 1.0 percent in the June 2011 quarter. The volume of household expenditure on durables has increased in eight of the last nine quarters. The increase in the latest quarter was the result of increased spending on recreational goods and new vehicles. The increase in spending on new vehicles is consistent with increased imports of cars. Partly offsetting these increases was a decrease in spending on furniture and major appliances.

Household consumption of non-durable goods increased 3.3 percent in the September 2011 quarter, following a 1.2 percent decrease in the June 2011 quarter. The main driver of the increase in the volume of expenditure on non-durable goods was supermarket spending. This increase is consistent with the increase in retail trade activity as measured in the production measure of GDP. The increase in the volume of expenditure on non-durable goods was the largest since a 3.5 percent increase in the March 1996 quarter.

The volume of household expenditure on services increased 0.7 percent in the September 2011 quarter, following a flat June 2011 quarter. The latest increase was due to increased spending on food and alcohol in restaurants, which was partly offset by a decrease in spending on overseas travel.

Conceptually, spending by New Zealand residents overseas is included in household consumption expenditure as it is spending by New Zealand households. Spending by overseas visitors in New Zealand is subtracted from household consumption expenditure as it is not spending by New Zealand households. The volume of spending by New Zealand residents overseas increased 3.0 percent during the September 2011 quarter. Spending by overseas visitors in New Zealand increased 1.0 percent.

For the year ended September 2011, the volume of household consumption expenditure increased 1.9 percent, compared with a 1.8 percent increase increase in the year ended September 2010. This rise was due to increased spending on durables (up 3.0 percent), services (up 1.1 percent), and non-durables (up 0.5 percent).

Investment in infrastructure and residential building down 

Gross fixed capital formation (GFKF) decreased 1.9 percent in the September 2011 quarter. GFKF consists of business investment plus residential building investment.

Graph, Gross fixed capital formation, quarterly change, September 2005 to 2011.

Investment in residential buildings declined 1.8 percent in the September 2011 quarter, following a 6.9 percent decrease in the June 2011 quarter. Investment in residential buildings is at its lowest level since the June 1993 quarter. This decline is reflected in lower construction activity, as measured in the production measure of GDP. The Value of Building Work Put in Place: September 2011 quarter information release reported no change in residential building activity in the quarter. For the year ended September 2011, residential building investment decreased 11.4 percent.

Graph, Gross fixed capital formation – residential building, quarterly change, September 2005 to 2011.

Business investment in fixed assets decreased 1.9 percent in the September 2011 quarter. The main contributors to this decrease were investment in:

  • other construction (down 6.5 percent), which includes infrastructure investment in roads, bridges, rail, and the national grid
  • non-residential building (down 7.1 percent), consistent with the decline recorded in Value of Building Work Put in Place: September 2011 quarter
  • transport equipment (down 9.7 percent), which includes investment in trains and aircraft.

Partly offsetting these decreases was a 6.0 percent increase in investment in plant, machinery, and equipment. This increase is consistent with an increase in imports of these types of goods this quarter.

Graph, Gross fixed capital formation – plant, machinery, and equipment, quarterly change, September 2005 to 2011.

For the year ended September 2011, GFKF increased 5.5 percent and business investment increased 10.8 percent. The main contributors to these increases were plant, machinery, and equipment (up 13.3 percent), transport equipment (up 37.1 percent), and other construction (up 12.7 percent).

Build-up in manufacturing and distribution inventories

Total inventories were built up by $1,132 million in the September 2011 quarter, following a build-up of $284 million in the June 2011 quarter. Manufacturing inventories increased by $475 million, driven mainly by a build-up in food, beverage, and tobacco inventories. This build-up is consistent with the increase in manufacturing activity. There was also a build-up of $371 million in distribution inventories, which is due to higher levels of retail trade and wholesale trade stocks.

Government final consumption expenditure up 0.6 percent

General government final consumption expenditure increased 0.6 percent in the September 2011 quarter, following a flat June 2011 quarter. Central government expenditure increased 0.3 percent in the latest quarter, mainly due to a rise in the volume of spending on health.

Graph, Government final consumption expenditure, quarterly change, September 2005 to 2011.

Local government final consumption expenditure increased 2.6 percent in the September 2011 quarter, following a 1.1 percent decrease in the June 2011 quarter.

For the year ended September 2011, general government final consumption expenditure increased by 2.8 percent, compared with 2.2 percent for the year ended September 2010. The largest increase in government expenditure in the latest year was a 5.6 percent increase in central government administration.

The annual increase in expenditure in central government administration was due to:

  • preparation for the scheduled 2011 Census of Population and Dwellings
  • increased numbers of personnel employed by the Department of Internal Affairs (including those employed by Civil Defence)
  • increased numbers of contractors working for the Earthquake Commission.

Export volumes of services up, goods down

Export volumes of goods and services increased 0.4 percent in the September 2011 quarter, following a decrease of 0.4 percent in the June 2011 quarter.

The volume of goods exported decreased by 1.8 percent in the September 2011 quarter. The main drivers of this decrease were decreases in dairy exports and meat exports.

Exports of services increased 7.2 percent in the September 2011 quarter, following a 6.8 percent fall in the June 2011 quarter. The increase in the latest quarter was driven by exports of transport services (up 12.7 percent) and exports of travel services (up 2.0 percent). Overseas visitors' expenditure is recorded in the period that they leave New Zealand. This may be a different period to when they arrive in New Zealand.

Import volumes up

Import volumes of goods and services increased 3.1 percent in the September 2011 quarter, following a 2.0 percent increase in the June 2011 quarter.

The volume of goods imported increased 3.0 percent in the September 2011 quarter. The main contributors to this increase were increases in imports of machinery and plant (up 13.5 percent) and cars (up 21.6 percent). The increase in machinery and plant imports is reflected by the increase in plant, machinery, and equipment investment. The increase in imports of cars is consistent with increases in motor vehicle retailing activity and household consumption expenditure on new vehicles. Partly offsetting these increases was a 4.9 percent decrease in intermediate goods imports. Intermediate goods are goods which are used up in the production process.

The volume of services imported increased 4.1 percent in the September 2011 quarter. Royalties were the main contributor to this increase. This includes tournament hosting and broadcast fees related to the RWC.

For the year ended September 2011, export volumes increased 2.1 percent, driven mainly by dairy export volumes. Over the same period, import volumes increased 9.9 percent, with capital goods (up 26.6 percent), intermediate goods (up 10.5 percent), and consumer goods (up 7.2 percent) all recording large increases.

Graph, Imports and exports of goods and services, quarterly, September 2005 to September 2011.

Implicit price deflator up 4.8 percent 

The GDP implicit price deflator (IPD) for the year ended September 2011 increased 4.8 percent. The GDP IPD is a broad measure of the overall price change for final goods and services produced in New Zealand.

The IPD for gross national expenditure increased 3.0 percent for the year ended September 2011. This provides a broad measure of the overall price change for final goods and services purchased in New Zealand (such as consumer and investment goods).

The consumers price index (CPI) increased 4.6 percent for the year ended September 2011 (see Consumers Price Index: June 2011 quarter). The CPI measures the rate of price change of goods and services purchased by households. 

The rate of goods and services tax (GST) was increased from 12.5 percent to 15 percent on 1 October 2010.

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