Economy grows as GDP rises 0.8% in March quarter

Economy grows 0.8 pct in March quarter, 1.5 pct on year ago

Data in line with expectations

Previous quarter revised to 0.5 pct growth from 0.2 pct

Primary sector, manufacturing, and tourism industries lead growth

Construction sector and oil and gas production contract

Reserve Bank will have whether growth still needs low cash rate of 2.25 pct next month

The economy had a solid start to the year as the rural sector, manufacturing and tourism growth offset soft construction and mining activity, before the Middle East conflict likely stymied recovery.

Stats NZ data showed gross domestic product (GDP) - the broad measure of economic growth - rose 0.8 percent in the three months ended March, to be 1.5 percent higher than a year ago. On an annual average basis the economy grew 0.8 percent over the year.

Expectations had been for quarterly growth in a range of 0.7 to 1.0 percent, although the growth of the previous quarter was revised higher to 0.5 percent from 0.2 percent.

Stats NZ spokesperson Jason Attewell said nine of 16 industry groups posted growth, with manufacturing the strongest.

"New Zealand's manufacturing industry is a large and diverse sector of the economy, making up around 8 percent of GDP."

Transport equipment, machinery and food manufacturing were the biggest drivers.

Turning the economic corner

The quarter's growth was the third in a row and alongside manufacturing the strongest sectors were business services up 2.2 percent, and wholesale trade up 2.4 percent.

Services make up close to three quarters of the economy and there was strength on the professional, scientific and technical services and retail industries.

Attewell said a pullback in construction activity was the main damper on growth, falling 1 percent.

"Declines in both residential and non-residential building contributed to the overall fall in construction activity."

The other notable contraction was in mining which reflected falling oil and gas production.

Individual shares of the economy - per capita GDP - rose 0.5 percent for the quarter.

The country's purchasing power (disposable income) rose 0.6 percent for the quarter, to be 2.1 percent ahead of a year ago.

Derailed recovery?

The GDP reading was being seen as an indication of the economy's direction of travel and the strength of the recovery, before being hit by the Middle East conflict.

Falls in business, consumer confidence and the strong spike in energy prices caused by the conflict over the past three months have been taken as signs the growth momentum was likely stalled but not derailed.

Forecasts are now picking the possibility of a contraction in the three months ended June, before a gradual resumption of growth for an annual rate of below 2 percent this year at best.

The Reserve Bank last month held the official cash rate (OCR) at 2.25 percent and signalled rates will have to rise to combat higher inflation, but it was also balancing the need to support the economic recovery.

New Zealand's quarterly growth rate was the strongest among key trading partners including the US, UK, EU, Japan and Australia.

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