Gross Domestic Product: December 2011 quarter

Commentary

New Zealand economy grows 0.3 percent

Gross domestic product (GDP) was up 0.3 percent in the December 2011 quarter, following an increase of 0.7 percent in the September 2011 quarter.

In the December 2011 quarter, increased economic activity was due to rises in the service industries (up 0.7 percent) and primary industries (up 2.7 percent). A decline in the goods-producing industries (down 1.6 percent) partly offset these increases.

The main movements by industry this quarter were:

  • Finance, insurance, and business services (up 1.3 percent). This is the fifth consecutive quarterly increase in this industry.
  • Agriculture (up 3.5 percent). This rise follows a 2.0 percent fall in the September 2011 quarter.
  • Retail, accommodation, and restaurants (up 2.2 percent). Activity from spectators and participants of the Rugby World Cup, including accommodation services and the purchase of merchandise and souvenirs, is included in this industry.
  • Manufacturing (down 2.5 percent). Food, beverage, and tobacco manufacturing was the largest contributor to the decline.
  • Government administration and defence (down 2.3 percent). This is the largest fall in government administration and defence activity since a 3.0 percent decrease in the December 1998 quarter.

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

Economic activity for the year ended December 2011 was up 1.4 percent when compared with the year ended December 2010.

Activity in the December 2011 quarter was 1.8 percent higher than in the December 2010 quarter.

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

Expenditure on gross domestic product – main movements

The expenditure measure of GDP rose 0.5 percent in the December 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 0.8 percent). This rise follows a 1.6 percent increase in the September 2011 quarter.
  • Gross fixed capital formation (up 1.7 percent). The largest contributor is a $244 million rise in investment in transport equipment.
  • Exports of goods and services (up 2.8 percent) and imports of goods and services (down 2.9 percent). Exports of goods increased 4.3 percent, the largest rise since a 4.8 percent increase in the June 2009 quarter.

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

Expenditure on GDP for the year ended December 2011 increased 1.3 percent, when compared with the year ended December 2010.

Real gross national disposable income up 1.9 percent for year

Real gross national disposable income (RGNDI) increased 1.9 percent for the year ended December 2011, while GDP grew 1.4 percent over the same period.

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

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. RGNDI also measures the net flows of income with the rest of the world, as not all of the income generated by domestic production accrues to New Zealand residents, to give 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.

The difference between RGNDI and GDP for the year ended December 2011 was driven by an increase in the terms of trade effect, which means that more imports could be funded by a fixed quantity of exports.

GDP by industry – primary and service industries up, goods-producing down

Agriculture drives growth in primary industries

Activity in the primary industries increased 2.7 percent in the December 2011 quarter. This is the largest increase in the primary industries since a 2.8 percent increase in the December 2007 quarter. Agriculture was the largest contributor to the rise in the December 2011 quarter (up 3.5 percent), with good growing conditions leading to increased milk production.

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

Fishing, forestry, and mining activity increased 1.3 percent in the December 2011 quarter. This rise is due to increased mining activity (up 2.7 percent) as a result of more coal mining and exploration activity. Increased exploration is consistent with higher investment on intangibles, as measured in gross fixed capital formation in the expenditure measure of GDP.

Graph, Fishing, forestry, and mining, quarterly change, December 2005 to 2011.

Fishing activity declined 7.0 percent in the December 2011 quarter, the third consecutive quarterly decline. Activity in forestry and logging fell 0.1 percent in the December 2011 quarter.

Primary industries up for year due to agriculture

For the year ended December 2011, primary industry activity increased 1.9 percent when compared with the year ended December 2010. A 4.4 percent increase in agriculture activity in latest year was the main contributor to the rise.

Manufacturing leads decline in goods-producing industries

Activity in goods-producing industries declined 1.6 percent in the December 2011 quarter. This quarter's decline is the largest since a 1.8 percent decrease in the September 2009 quarter. The main contributor to the decline in the latest quarter was manufacturing, down 2.5 percent. Also contributing to the decline was a 2.4 percent fall in electricity, gas, and water activity.

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

Lower activity in manufacturing follows an increase of 2.2 percent in the September 2011 quarter. The largest contributions to the fall in manufacturing activity in the latest quarter were:

  • food, beverage, and tobacco manufacturing, down 5.6 percent
  • machinery and equipment manufacturing, down 3.9 percent
  • non-metallic mineral manufacturing, down 8.4 percent
  • textile and apparel manufacturing, down 10.1 percent.

Within food, beverage, and tobacco manufacturing, meat product manufacturing declined and dairy product manufacturing increased. The Economic Survey of Manufacturing: December 2011 quarter reported a 3.2 percent increase in the volume of meat and dairy sales. The ESM measures sales, while GDP measures production. Direct volume measures are used to estimate meat and dairy production in GDP. The indicator for meat manufacturing in GDP is livestock slaughters, while for dairy the actual amount of dairy products produced is used.  

Increased dairy product manufacturing is consistent with an increase in exports of dairy products, as measured in exports on the expenditure measure of GDP. Also consistent with increased dairy exports is a run-down in primary food inventories, following a build-up in primary food inventories in the September 2011 quarter.

Partly offsetting these decreases in manufacturing this quarter were increases in:

  • petroleum, chemical, plastic, and rubber products manufacturing, up 5.4 percent
  • wood and paper products manufacturing, up 3.3 percent.

Construction activity increases

Partly offsetting these decreases in the December 2011 quarter was a 1.5 percent increase in construction activity. Contributing to higher construction activity were increases in both residential and non-residential building activity.

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

The Value of Building Work Put in Place: December 2011 quarter information release reported that residential building activity increased 4.4 percent and non-residential building activity increased 1.4 percent. There appeared to be a greater increase in building activity in Canterbury than the rest of New Zealand.

Goods-producing industries down for year as annual construction activity falls

For the year ended December 2011, activity in the goods-producing industries decreased 0.8 percent. This decrease was due to a 7.0 percent fall in construction activity. Construction activity is now at its lowest annual level since the year ended March 2003.

Finance, insurance, and business lead growth in services

Activity in the service industries rose 0.7 percent in the December 2011 quarter, the largest quarterly increase since a 0.8 percent rise in the December 2007 quarter.

Finance, insurance, and business services rose 1.3 percent, following an increase of 0.6 percent in the September 2011 quarter. Within the industry, real estate and business services rose 1.6 percent, driven by a 2.4 percent increase in business services. Business services includes advertising and management services. Finance and insurance rose 1.9 percent this quarter – mainly due to finance services – and is now at the highest quarterly level since the series began in 1987.

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

Retail activity at highest quarterly level

The 2011 Rugby World Cup tournament spanned the September and December 2011 quarters. Activity from spectators and participants, including accommodation services and the purchase of merchandise and souvenirs, is included in the retail, accommodation, and restaurants industry. Retail trade activity for the September and December 2011 quarters combined was 5.7 percent higher compared with the same period in 2010. For information on the effects of the tournament in quarterly gross domestic product see Treatment of the 2011 Rugby World Cup in New Zealand's balance of payments and national accounts.

Retail, accommodation, and restaurant activity increased 2.2 percent in the December 2011 quarter, following a rise of 2.6 percent in the September 2011 quarter. Activity in retail, accommodation, and restaurants is now at its highest quarterly level since the series began in 1987. In the December 2011 quarter, retail trade activity increased 2.3 percent, and accommodation and restaurants activity increased 1.9 percent.

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

Wholesale up, government and communications down

Wholesale trade activity (up 0.9 percent) also contributed to the increase in the service industries in the December 2011 quarter.

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

Partly offsetting these increases was lower activity in government administration and defence (down 2.3 percent), and transport and communication (down 0.8 percent). The decline in government administration this quarter was due to a decrease in compensation of employees and hours worked in the December 2011 quarter. The change in timing of the school holidays in 2011 affected the seasonality of this series. This quarters decline in transport and communication was driven by a 1.5 percent decrease in communication services. This is reflected in lower expenditure on communication services by households, as measured in household consumption on the expenditure measure of GDP.

Graph, Government administration and defence, quarterly change, December 2005 to 2011.

Annual increase in services largest in three years

For the year ended December 2011, activity in the service industries increased 1.8 percent. This is the largest annual growth in the service industries since a 2.1 percent increase in the year ended September 2008.

Expenditure on gross domestic product up

Expenditure on GDP increased 0.5 percent in the December 2011 quarter, following an increase of 1.0 percent in the September 2011 quarter.

While the production-based measure and expenditure-based measures 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 December 2011, expenditure on GDP increased 1.3 percent, compared with a 2.4 percent increase for the year ended December 2010.

Household expenditure continues to rise

Household final consumption expenditure increased 0.8 percent in the December 2011 quarter. Household consumption expenditure measures the volume of spending on goods and services by New Zealand resident households. Household final consumption expenditure has increased for 11 consecutive quarters.

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

The volume of durable goods purchased by New Zealand households increased 4.0 percent in the December 2011 quarter, following an increase of 1.1 percent in the September 2011 quarter. The latest rise is the largest since a 4.7 percent increase in the March 2007 quarter, and results from increased spending on furniture and major appliances. This increase is consistent with the increase in retail trade activity as measured in the production measure of GDP. Partly offsetting this increase was a decrease in spending on recreational vehicles.

Household consumption of non-durable goods increased 0.3 percent in the December 2011 quarter, following a 3.2 percent increase in the September 2011 quarter. The latest rise is due to spending on food, and is consistent with the increase in retail trade activity as measured in the production measure of GDP. Partly offsetting the increase in the latest quarter was a decrease in spending on electricity.

The volume of household expenditure on services increased 0.9 percent in the December 2011 quarter, following a 0.8 percent increase in the September 2011 quarter. The latest increase was due to increased spending on air travel, which was partly offset by a decrease in spending on communications.

The total volume of spending in New Zealand was up 1.6 percent, with some of this by overseas visitors to New Zealand. 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 decreased 7.2 percent in the December 2011 quarter. Spending by overseas visitors in New Zealand increased 5.7 percent, which includes spending by international spectators and participants of the Rugby World Cup.

Annual household spending up

For the year ended December 2011, the volume of household consumption expenditure increased 2.4 percent, compared with a 2.1 percent increase in the year ended December 2010. The latest rise was due to increased spending on durables (up 5.2 percent), services (up 1.4 percent), and non-durables (up 1.4 percent).

Investment in fixed assets up

Gross fixed capital formation (GFKF) increased 1.7 percent for the December 2011 quarter. GFKF consists of business investment plus residential building investment.

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

Investment in residential buildings increased 4.2 percent in the December 2011 quarter, following a 0.5 percent decrease in the September 2011 quarter, when investment in residential buildings was at its lowest level since the June 1993 quarter. Investment in residential buildings has increased for the first time following five consecutive quarterly decreases. For the year ended December 2011, residential building investment decreased 12.0 percent.

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

Business investment in fixed assets, which is total GFKF excluding residential building, increased 1.1 percent in the December 2011 quarter. The main contributors to the increase were investment in:

  • Transport equipment (up 46.3 percent), which includes investment in trains and aircraft. This increase is due to one-off imports of aircraft this quarter (including military helicopters).
  • Non-residential building (up 7.6 percent).
  • Intangibles (up 4.5 percent), which include exploration and software.

Partly offsetting these increases was a 7.8 percent decrease in plant, machinery, and equipment. This decrease is consistent with a decrease in imports of these types of goods.

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

Investment in fixed assets up for the year

For the year ended December 2011, GFKF increased 2.5 percent and business investment increased 6.9 percent. The main contributors to these increases were plant, machinery and equipment (up 13.8 percent), other construction (up 9.8 percent), and transport equipment (up 14.4 percent).

Small build-up in inventories

Total inventories were built up by $19 million in the December 2011 quarter. Distribution inventories increased $79 million, mainly due to a build-up in wholesale inventories. Offsetting the increases this quarter was a $150 million run-down in manufacturing inventories. This follows a build-up of manufacturing inventories of $618 million in the September 2011 quarter. The build-up in manufacturing inventories in the previous quarter is consistent with the large increase in exports in the December 2011 quarter.  

Government final consumption expenditure falls

General government final consumption expenditure decreased 0.7 percent in the December 2011 quarter, following a 0.5 percent increase in the September 2011 quarter. Central government expenditure was flat this quarter.

Graph, General government final consumption expenditure, quarterly change, December 2005 to 2011.

Local government final consumption decreased 5.2 percent in the December 2011 quarter, following a 2.1 percent increase in the September 2011 quarter. Higher than usual levels of purchases in the previous two quarters (due to earthquake related expenditure and amalgamation of Auckland councils) led to the fall in local government expenditure this quarter.  

General government expenditure up for year

For the year ended December 2011, general government final consumption expenditure increased 1.8 percent, compared with a 3.4 percent increase for the year ended December 2010.

Exports of goods up due to dairy products

Export volumes of goods and services increased 2.8 percent in the December 2011 quarter, following an increase of 0.7 percent in the September 2011 quarter.

The volume of goods exported increased 4.3 percent in the December 2011 quarter, mainly due to exports of dairy products. The volume of dairy products exported was at the highest level since the series began in the June 2000 quarter. Exports of meat products fell this quarter.

Exports of services down due to transport services

Exports of services decreased 0.7 percent in the December 2011 quarter, following a 6.9 percent increase in the September 2011 quarter. The decrease in the latest quarter was due to a decrease in exports of transport services (down 6.8 percent), which was partly offset by an increase in exports of travel services (up 3.1 percent).

The Rugby World Cup was held in New Zealand in September and October 2011, spanning two quarters. The combined volume of expenditure by overseas visitors to New Zealand in the September and December 2011 quarters was 16.2 percent higher compared with the same period in 2010.

Import volumes down due to intermediate and consumption goods

Import volumes for goods and services decreased 2.9 percent in the December 2011 quarter, following a 2.6 percent increase in the September 2011 quarter.

The volume of goods imported decreased 2.6 percent in the December 2011 quarter. The main contributors to this decrease were decreases in imports of intermediate goods (down 5.9 percent) and consumption goods (down 6.6 percent). Partly offsetting these decreases was a $200 million increase in imports of transport equipment, which included NH90 military helicopters and other aircraft. This increase is reflected by the increase in transport equipment investment. The decline in imports of intermediate and consumption goods in the December 2011 quarter is consistent with what occurred in the previous quarter. In the September 2011 quarter, there was an increase in imports of consumption goods, and a build-up of distribution inventories.  

The volume of services imported decreased 3.9 percent in the December 2011 quarter. Travel and royalties services were the main contributors to this decrease.

Imports up more than exports for the year

For the year ended December 2011, export volumes increased 2.4 percent, mainly driven by exports of dairy products. Over the same period, import volumes increased 6.0 percent, with capital goods (up 19.1 percent), intermediate goods (up 5.4 percent), and consumption goods (up 4.4 percent) all recording increases.

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

Implicit price deflators up 3.5 percent for year 

The GDP implicit price deflator (IPD) for the year ended December 2011 increased 3.5 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 2.6 percent for the year ended December 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 1.8 percent for the year ended December 2011 (see Consumers Price Index: December 2011 quarter). The CPI measures the rate of price change of goods and services purchased by households.

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