Slowing economic growth predicted

ECONOMIC growth is expected to have slowed in the third quarter of the year when Statistics New Zealand releases its figures on Thursday.

Economists expect just 0.4% quarteronquarter GDP growth, to give annual growth of 2.2%.

The Reserve Bank is forecasting quarterly growth of 0.7% and annual growth of 2.6%.

Construction was expected to be a bright spot for the quarter but falls in dairy production and soft retail and housingrelated activity would weigh heavily on growth, ASB senior economist Jane Turner said.

Population growth for the same period was 2.1%.

‘‘Growth’s performance over the past year has been underwhelming and we have scaled back our optimism for coming years as a result.

‘‘A result weaker than the Reserve Bank’s November Monetary Policy Statement merely reinforces the outlook for interest rates to remain on hold until at least early 2019.’’

Ninetyday bank bills, which still play a role in influencing mortgage rates, fell last week to 1.89%, by far the lowest since 2010. The highest rate in the past seven years was 3.73%.

There was some uncertainty about the final figures because Statistics NZ would incorporate two years of annual benchmark revisions, which could, on occasion, alter the growth profile.

The impact of alreadyreleased nominal estimates to March 2017 led to slightly higher nominal GDP and Ms Turner said it was possible the upward revisions could also filter through to priceadjustment estimates of GDP.

In the September quarter, construction activity appeared to have recovered after unexpected falls over the previous two quarters.

Capacity constraints were biting in the construction sector and output had not kept up with demand, she said.

Skilled labour was a particular binding restraint, as it took time to train workers. Once up to speed, the additional skilled workers could boost output.

‘‘Strong construction demand is likely to have provided a boost to nonprimary manufacturing activity as well.’’

The other bright spot for the quarter was some service sectors, as the services survey was indicating strong growth in arts and recreation, and modest growth in professional services.

Modest growth had been pencilled in for public administration in light of the additional resources required for the general election, Ms Turner said.

There would be some disappointments. A weak quarter for dairy production was likely to feature and there was a fall in livestock slaughter volumes.

Electricity generation contribution to GDP would be likely negative, due to a fall in hydro’s

share of electricity generation, which had low input costs compared with other methods of electricity generation, she said.

Retail spending growth was likely to be lower, largely as a payback from the previous quarter’s British and Irish Lions rugby tour.

However, the road remained treacherous.

‘‘We cautiously expect stronger GDP growth in the December quarter.’’

Dairy production had started the fourth quarter strongly although dry conditions were likely to hamper the recovery.

The housing market had showed signs of life in some areas of the country now election uncertainty had passed.

There were some encouraging signs of retail spending and beer drinking in the fourth quarter, Ms Turner said.

One risk to growth for the next few quarters was the sharp drop in business confidence in the wake of the change of government. Business confidence was often lower about the pace of growth under Labour, compared to National.

There was likely to be some disruption to activity due to nearterm uncertainty and, if business confidence remained weak for several months, a crisis of confidence could become a selffulfilling prophecy, she said.

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