Drought ef­fect lin­ger­ing in fig­ures

Matamata Chronicle - - Rural Delivery -

The sum­mer drought is likely to have the econ­omy knocked back­wards in the June quar­ter, pos­si­bly down 0.2 per cent, though there is no risk of a slide into re­ces­sion, econ­o­mists say.

While the of­fi­cial fig­ures will be ‘‘un­flat­ter­ing’’ for the econ­omy, af­ter sub­dued growth of just 0.3 per cent in the March quar­ter, there should be a strong bounce in the Septem­ber quar­ter, fore­cast­ers say.

Of­fi­cial fig­ures for eco­nomic growth are due on Thurs­day.

They are ex­pected to show the full dam­age from a slump in milk pro­duc­tion and a drop in live­stock slaugh­ter num­bers, af­ter a spike up ear­lier in the year be­cause of the drought.

On the other hand, ASB econ­o­mists ex­pect a boost from greater re­tail spend­ing as peo­ple buy fur­ni­ture and elec­tron­ics for their new homes, un­der­pinned by the stronger hous­ing mar­ket.

Last week, the Re­serve Bank’s Mone­tary Pol­icy State­ment gave a fore­cast of 0.4 per cent for the June quar­ter, but that did not in­clude the most up-to-date fig­ures, which were weaker than ex­pected.

West­pac is pick­ing GDP to fall 0.1 per cent in the June quar­ter, with the drought knock­ing 0.6 per­cent­age points off the growth fig­ure.

‘‘While the drought had well and truly bro­ken by June, the tim­ing of its ef­fects mean the great­est hit to the level of pro­duc­tion oc­curred over the June quar­ter,’’ West­pac said.

Agri­cul­tural out­put dropped about 8 per cent ac­cord­ing to West­pac es­ti­mates, af­ter a 4.7 per cent fall in the March quar­ter.

The big hit was in milk pro­duc­tion, down 11 per cent in the three months to the end of June.

As well, there was a near 5 per cent fall in food man­u­fac­tur­ing, with fall­ing vol­umes for dairy and meat pro­cess­ing.

ASB is pick­ing a 0.2 per cent drop in GDP, the same as Bank of New Zealand’s fore­cast last week.

But ASB is pre­dict­ing a strong re­bound in ac­tiv­ity in the Septem­ber quar­ter, re­flect­ing a re­cov­ery in milk pro­duc­tion from the slump in the first half of the year. There were also signs earth­quake re­build­ing was gain­ing steam in Christchurch, de­spite re­cent weak con­struc­tion fig­ures.

There should also be a boost from more home build­ing in Auck­land, ASB said.

HSBC Bank ex­pected a slight pos­i­tive fig­ure, with growth of 0.2 per cent in the June quar­ter, tak­ing an­nual growth to 2.3 per cent, down from an ear­lier fore­cast of 2.8 per cent. But it, too, ex­pected a strong bounce in the Septem­ber quar­ter.

The econ­omy grew a mild 0.3 per cent in the March quar­ter, tak­ing an­nual growth to 2.5 per cent.

De­spite still-healthy con­sumer and busi­ness con­fi­dence and the Can­ter­bury re­build, the se­vere drought is ex­pected to take its toll in the three months to June.

Man­u­fac­tur­ing fig­ures out last week showed sales vol­umes down 3.4 per cent, driven by a 10 per cent slump in meat and dairy pro­cess­ing in the quar­ter.

As well as that big bite, the pre­vi­ous boost from Cen­sus work­ers would drop out of the equa­tion, West­pac said.

While it fore­cast a drop in GDP in the June quar­ter, that did not mean New Zealand was head­ing back into re­ces­sion, West­pac said. The def­i­ni­tion of a re­ces­sion is two neg­a­tive quar­ters for GDP.

In fact, un­der­ly­ing ac­tiv­ity looked to be more ro­bust in the June quar­ter than the March quar­ter, West­pac said.

Look­ing through the im­pact of the drought, West­pac es­ti­mated un­der­ly­ing eco­nomic growth of about 0.5 per cent, which was not spec­tac­u­lar, but more broad-based than in the March quar­ter.

That re­flected a rise in re­tail spend­ing and higher non-food man­u­fac­tur­ing.

De­spite the Christchurch re­build, con­struc­tion was flat in the June quar­ter, ac­cord­ing to lat­est fig­ures. The vol­ume of home build­ing ac­tu­ally fell 1.8 per cent in the June quar­ter. That was seen as sur­pris­ing but may be a tem­po­rary pause in build­ing.

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