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Gross Domestic Product: September 2010 quarter
Embargoed until 10:45am  –  23 December 2010
Commentary

New Zealand economy declines 0.2 percent

Gross domestic product was down 0.2 percent in the September 2010 quarter, following an increase of 0.1 percent in the June 2010 quarter. The decline in economic activity this quarter follows five consecutive quarters of growth.

In the September 2010 quarter, the decline in economic activity was due to falls in the primary and goods-producing industries, while activity in the services industries increased.

The main movements by industry this quarter were:

  • Manufacturing (down 1.7 percent). Petroleum, chemical, plastic, and rubber products manufacturing, and machinery and equipment manufacturing were the largest contributors to the fall this quarter.
  • Construction (down 2.5 percent). This is the first fall in construction activity since a 3.1 percent decline in the September 2009 quarter.
  • Real estate and business services (down 0.7 percent). This follows a 1.2 percent increase in the June 2010 quarter.
  • Wholesale trade (up 2.4 percent). This is the fourth consecutive quarter of growth in the wholesale trade industry.
  • Transport and storage (up 3.4 percent). This is the largest increase in transport and storage since a 4.1 percent increase in the December 2003 quarter.

Activity in the September 2010 quarter was 1.5 percent higher than activity in the September 2009 quarter.

Economic activity for the year ended September 2010 was up 1.4 percent when compared to the four quarters ended September 2009.

 Graph, gross domestic product, annual change, September 2004–10.

The expenditure measure of GDP fell 0.4 percent in the September 2010 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:

  • Imports (up 3.0 percent). Increased imports of machinery and plant was the largest contributor this quarter.
  • Exports (down 1.1 percent). The largest contributions came from decreased exports of meat and dairy products.
  • Gross fixed capital formation (down 1.8 percent). Decreased investment in residential buildings was the main reason for the fall.
  • Household consumption expenditure (up 0.5 percent). Household expenditure on durable goods and services increased, while expenditure on non-durable goods fell.

Gross domestic product by industry

Primary industries

Activity in the primary industries declined 2.8 percent in the September 2010 quarter, following a 1.0 percent rise in the June 2010 quarter. The fall this quarter is the largest for the primary industries since a 2.9 percent fall in the March 2008 quarter. The main contributor to the fall in primary industries this quarter was a 5.5 percent decline in fishing, forestry, and mining activity.

Graph, fishing, forestry and mining, quarterly change, September 2004–10.  

Mining activity decreased 6.9 percent in the September 2010 quarter, following a 6.1 percent rise in the June 2010 quarter. A decline in both extraction and exploration activity this quarter contributed to the fall. The decline in extraction activity is also reflected in the expenditure measure of GDP, with intangible investment falling 1.8 percent. Fishing, a small and variable industry, declined $10 million in the September 2010 quarter, following a $14 million increase in the June 2010 quarter.

Agricultural activity declined 1.0 percent in the September 2010 quarter, due to a fall in livestock production, which was partly offset by increased milk production. This is the second consecutive decline in activity for the agriculture industry, following a 1.9 percent decrease in the June 2010 quarter.

Forestry and logging was the only primary industry to record growth in the September 2010 quarter, rising 0.6 percent. Exports of forestry primary products declined in the September 2010 quarter (down 2.7 percent), following increases in both the March 2010 and June 2010 quarters. The increase in forestry and logging activity this quarter is the seventh consecutive quarterly increase, but the smallest of the past seven increases. International demand for logs as reflected in exports of forestry primary products has been strong in recent quarters, but slowed in the September quarter.

For the year ended September 2010, primary industry activity increased 1.1 percent, compared with a 1.1 percent fall in the year ended September 2009. The main contributor to the rise was a 13.5 percent increase in forestry and logging activity.

Goods-producing industries

Activity in goods-producing industries declined 1.5 percent in the September 2010 quarter, following a decline of 1.3 percent in the June 2010 quarter. Manufacturing, down 1.7 percent, was the main contributor to the decrease this quarter, while a 2.5 percent fall in construction activity also contributed. Electricity, gas, and water partly offset the fall, increasing 1.2 percent.

The decline in manufacturing activity this quarter is the second consecutive quarterly decline, following a fall of 4.3 percent in the June 2010 quarter. The largest contributions to the latest fall were:

  • A 6.9 percent fall in petroleum, chemical, plastic, and rubber products manufacturing. This is the largest decline for petroleum, chemical, plastic and rubber products manufacturing since an 8.9 percent decrease in the December 2008 quarter.
  • A 4.2 percent decrease in machinery and equipment manufacturing. With exports of metal products, machinery, and equipment increasing this quarter (up 4.9 percent), the decline in manufacturing activity, combined with the increased exports, contributed to the run-down in manufacturing inventories, as seen in the expenditure measure of GDP.
  • A 1.6 percent decline in wood and paper products manufacturing. This is the largest fall since a 3.1 percent decrease in the March 2009 quarter, and is reflected in decreased exports of wood and paper products (down 8.9 percent) in the expenditure measure of GDP.

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

  • furniture and other manufacturing (up 2.5 percent)
  • textile and apparel manufacturing (up 2.2 percent)
  • printing, publishing, and recorded media (up 0.5 percent)
  • food, beverage, and tobacco manufacturing (up 0.1 percent).

 Graph, Manufacturing, quarterly change, September 2004–10.

In the September 2010 quarter, activity in the construction industry fell 2.5 percent. This is the first fall since a 3.1 percent decrease in the September 2009 quarter, and follows a 5.6 percent increase in the June 2010 quarter. A decline in investment in both residential, and non-residential buildings, as measured in gross fixed capital formation in the expenditure measure, contributed to the fall in construction activity this quarter.

 Graph, Construction, quarterly change, September 2004–2010.

Electricity, gas, and water activity increased 1.2 percent in the September 2010 quarter, due to increased electricity generation and supply.

For the year ended September 2010, activity in the goods-producing industries rose 0.1 percent, compared with a 9.5 percent decline in the year ended September 2009. The increase for the year ended September 2010 is the first annual increase since a 0.3 percent rise in the year ended June 2008.

Service industries

Activity in the services industries rose 0.3 percent in the September 2010 quarter, following a 0.6 percent rise in the June 2010 quarter. The latest rise is the sixth consecutive quarterly increase in service industry activity.

A 2.1 percent increase in activity for transport and communication was the largest contributor to the rise this quarter. Activity for both transport and storage (up 3.4 percent) and communication services (up 0.4 percent) increased this quarter, contributing to the overall rise. The latest increase in transport and storage activity is the largest since a 4.1 percent increase in the December 2003 quarter, and was mainly driven by an increase in air transport activity. The rise in communication services was driven by increased volumes in both telecommunication and postal services.

 Graph, transport and communication, quarterly change, September 2004–10.

Other service industries which had increased activity this quarter were:

  • wholesale trade (up 2.4 percent), with the main contributor being machinery and equipment wholesaling
  • retail, accommodation, and restaurants (up 0.4 percent), due to an increase in retail trade activity. A fall in activity in accommodation, restaurants, and bars partly offset the rise in retail trade
  • government administration and defence (up 0.6 percent), with activity in central and local government increasing.

Graph, Wholesale value added, quarterly change, September 2004–10.  

Finance, insurance, and business services recorded the largest decline of all service industries in the September 2010 quarter, falling 0.2 percent. Real estate and business services was the largest contributor to the fall. Activity for personal, health, and community services also declined (down 0.3 percent), largely due to decreased activity for culture and recreation.

Graph, finance, insurance, and business services, quarterly change, quarterly change.  

For the year ended September 2010, activity in the services industries rose 1.3 percent, compared with a 0.4 percent rise in the year ended September 2009.

Expenditure on gross domestic product

Expenditure on GDP decreased 0.4 percent in the September 2010 quarter, following a 0.3 percent increase in the June 2010 quarter. While the production- 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 September 2010, expenditure on GDP increased 1.7 percent compared with the year ended September 2009.

Household consumption

Household consumption expenditure increased 0.5 percent in the September 2010 quarter, following a 0.1 percent increase in the June 2010 quarter. Household consumption expenditure measures the volume of spending by New Zealand-resident households on goods and services.

Graph, Household consumption expenditure, quarterly change, September 2004–10.  

Volumes of durable goods expenditure by households increased 0.9 percent in the September 2010 quarter, following a 0.6 percent increase in the June 2010 quarter. This is the fifth consecutive quarterly increase in expenditure on durable goods, and also the fifth consecutive quarter where retail furniture and major appliances has been the main driver of the increase. Increased expenditure on used vehicles, and clothing and footwear also contributed to the rise this quarter.

The volume of expenditure on services by households increased 0.5 percent in the September 2010 quarter, following a decline of 0.4 percent in the June 2010 quarter. Contributing to the rise this quarter were increases in communications and domestic air travel. The increase in communications is the result of increased toll calls and is reflected in an increase in communication services in the production measure of GDP.

Offsetting the increases in household expenditure was expenditure on non-durable goods, declining 0.2 percent in the September 2010 quarter. This follows an increase of 0.1 percent in the June 2010 quarter and is mainly due to lower volumes of alcoholic beverages purchased, the third consecutive quarterly decrease of this item. This decrease was partly offset by increased spending on electricity.

Graph, Household consumption expenditure, quarterly change in components, September 2008–10.  

For the year ended September 2010, household consumption expenditure increased 1.8 percent. This rise is the largest since a 2.2 percent increase in the year ended June 2008, and was the result of increased spending for all three categories; durables up 3.5 percent, non-durables up 0.5 percent and services up 0.8 percent.

Gross fixed capital formation

Gross fixed capital formation (GFKF) measures investment in fixed assets by households, business, and government.

 Graph, gross fixed capital formation, quarterly change, September 2004–10.

GFKF decreased 1.8 percent in the September 2010 quarter, the largest quarterly decline since a 3.9 percent decrease in the September 2009 quarter. The decrease in the September 2010 quarter was due to lower investment in all categories of GFKF with the exception of plant, machinery, and equipment, and land improvements.

Investment in residential building decreased 7.4 percent, the largest quarterly decrease since a 13.7 percent decrease in the December 2008 quarter. Investment in non-residential building also decreased (3.4 percent). This decrease is reflected in the movement of construction activity, which decreased 2.5 percent in the production measure of GDP.

 Graph, gross fixed capital formation – residential building, quarterly change, September 2004–10.

Investment in transport equipment (down 8.3 percent) and other construction (down 2.2 percent) also contributed to the decrease in GFKF in the September 2010 quarter.

Offsetting these decreases was investment in plant, machinery, and equipment, which increased 6.4 percent, the largest quarterly increase since a 10.2 percent increase in the September 2007 quarter. The latest increase was reflected in imports of capital goods during the quarter, with capital goods imports increasing 19.8 percent. Investment in land improvements increased 0.7 percent.

 Graph, gross fixed capital formation – plant, machinery, and equipment, quarterly change, September 2004–10.

For the year ended September 2010, GFKF was down 3.0 percent compared with the year ended September 2009. The largest declines were in plant, machinery, and equipment (down 9.5 percent) and non-residential building (down 8.0 percent).

Business investment in fixed assets showed no movement in the September 2010 quarter, following quarterly increases of 0.2 percent and 4.6 percent in the March 2010 and June 2010 quarters, respectively. Business investment consists of GFKF less investment in residential building. For the year ended September 2010, business investment in fixed assets declined 4.8 percent.

Inventories

Total inventories were built up by $82 million in the September 2010 quarter, following a run-down of $657 million in the June 2010 quarter. The rise in inventories this quarter was driven by a $483 million increase in distribution inventories, which includes retail and wholesale trade. Partly offsetting this was a run-down of $561 million in manufacturing inventories.

The Canterbury earthquake caused significant damage to stock in shops and warehouses in the September 2010 quarter. Our surveys collect the value of inventories at the end of each quarter, and the difference between opening and closing stock is assumed to be a run-down or a build-up of inventories. However, stock losses should be treated as write-offs rather than a change in inventories. For this reason, a $150 million adjustment was made to distribution inventories this quarter to reflect a conservative estimate for stock losses that would have otherwise been treated as a run-down in inventories.

Government

General government final consumption expenditure decreased 0.7 percent in the September 2010 quarter, following a 0.5 percent increase in the June 2010 quarter.

 Graph, general government final consumption, quarterly change, September 2004–10.

Central government expenditure decreased 0.6 percent in the September 2010 quarter. This follows increases of 0.4 percent and 1.8 percent in the June 2010 and March 2010 quarters, respectively. Both these quarters included the acquisition of offshore patrol vessels (the HMNZS Wellington in the June 2010 quarter, and the HMNZS Otago in the March 2010 quarter). If there had not been an offshore patrol vessel acquired in the June 2010 quarter, central government expenditure would have increased 0.4 percent in the September 2010 quarter.

This decrease was partly offset by increases in central government administration (up 1.1 percent) and health (up 0.7 percent), resulting in a smaller overall decline in central government expenditure. Local government final consumption expenditure decreased 2.0 percent in the September 2010 quarter, down from a 1.5 percent increase in the June 2010 quarter.

From 1 November 2010, eight councils combined to form the Auckland Council. The eight councils were Auckland Regional Council, Auckland City Council, Franklin District Council, Manukau City Council, North Shore City Council, Papakura District Council, Rodney District Council, and Waitakere City Council. This merger may impact on local government expenditure numbers in the December 2010 quarter.

For the year ended September 2010, general government final consumption expenditure increased 1.5 percent, compared with a 1.9 percent rise in the year ended September 2009.

Exports and imports

Export volumes of goods and services decreased 1.1 percent in the September 2010 quarter, following increases of 1.3 percent and 0.6 percent in the March 2010 and June 2010 quarters, respectively.

The volume of goods exported decreased 2.3 percent in the September 2010 quarter, following a 0.8 percent decrease in the June 2010 quarter. The main drivers of the decline in goods exported were:

  • meat products (down 17.0 percent)
  • dairy products (down 6.0 percent)
  • wood and paper products (down 8.9 percent), reflecting decreased manufacturing activity for wood and paper products as measured in the production measure of GDP.

Partly offsetting these decreases was a 10.6 percent increase in exports of agriculture and fishing primary products.

Exports of services were up 0.9 percent in the September 2010 quarter, following quarterly declines of 0.3 percent in the June 2010 quarter, and 2.8 percent in the March 2010 quarter.

 Graph, Imports and exports of goods and services, quarterly, September 2004–10.

Import volumes of goods and services increased 3.0 percent in the September 2010 quarter, the fifth consecutive increase, following a rise of 0.3 percent in the June 2010 quarter.

The volume of goods imported increased 4.6 percent in the September 2010 quarter, following a 0.1 percent increase in the June 2010 quarter. This is the fourth consecutive quarterly increase in the volume of goods imported. The main driver of this increase was a rise in the volume of machinery and plant imports (up 17.2 percent). This is reflected in GFKF through increased investment in plant, machinery, and equipment (up 6.4 percent) and a build-up of distribution inventories (increasing $483 million).

Partly offsetting the increase in imports of goods was a 41.6 percent decline in imports of military and other goods. This large decline is due to the importation of the offshore patrol vessel, HMNZS Wellington, in the June 2010 quarter.

In the September 2010 quarter, imports of services declined 0.8 percent, following a decrease of 0.4 percent in the June 2010 quarter.

For the year ended September 2010, export volumes were up 3.7 percent and import volumes increased 5.5 percent. This is the first annual increase in import volumes since a 2.6 percent increase in the year ended December 2008.

Real gross national disposable income

Real gross national disposable income (RGNDI) increased 1.6 percent in the year ended September 2010, while GDP grew 1.4 percent over the same period. GDP is a measure of economic activity, while RGNDI is a measure of the volumes of goods and services that New Zealand residents have command over. RGNDI takes into account changes in the terms of trade effect (the price of imports relative to the price of exports), and real gains from net investment and transfer income with the rest of the world.

 Graph, gross domestic product and real gross national disposable income, annual change, September 2004–10.

Implicit price deflators

The GDP implicit price deflator (IPD) for the year ended September 2010 increased 1.1 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 was up 0.4 percent for the year ended September 2010. 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).

Revisions to GDP

A number of revisions were incorporated into GDP this quarter. These revisions are discussed below.

Incorporation of new annual benchmarks

Updated benchmarks for the production and expenditure measures of GDP, due to the incorporation of the latest annual national accounts and institutional sector accounts data. Usually, the annual benchmarking affects only the last two or three years, as new balanced annual data are incorporated. In November 2010 the annual national accounts released revisions back to 1988. These revisions have been incorporated into the QGDP benchmarks resulting in revisions to the quarterly accounts back to 1988. Incorporation of annual benchmarks tends to impact on the level of GDP with little change to quarterly movements.

Changes to methodology for property services

Changes to the methodology for commercial property operators and developers in the property services industry were made in the annual national accounts. These revisions affect QGDP during the benchmarking process. Changes to the methodology for property services are discussed in the paper Improvements to Annual National Accounts.

This improved methodology for property services was incorporated from 1988 onwards. As well as revisions to the property services industry, revisions also affected the following industries:

  • food, beverage, and tobacco manufacturing
  • petroleum, chemical, plastic, and rubber manufacturing
  • construction
  • wholesale trade
  • retail trade
  • communications services
  • finance and insurance.

Expenditure weights updated

Weights for the expenditure measure of GDP were updated following the release of the annual national accounts. The weights for the expenditure measure of GDP are now up-to-date for the year ended March 2010. These updated weights resulted in minor revisions to all components on the expenditure measure of GDP from the year ended March 2008 onwards. Weights for the production measure of GDP are updated when new balanced years are available. The latest balanced year is currently the year ended March 2007.

Communications industry weights updated

Indicator weights for the communications industry were updated. A paper about measuring the communications industry in GDP was published on 16 November 2010. The impact of this revision is shown in the table below.

The communications industry makes up around 6 percent of GDP in volume terms. The communications industry represents the value added to the economy of providing services to businesses and households in:

  • postal and courier services
  • fixed line rental
  • fixed line international and domestic toll calls
  • mobile phone calls
  • Internet usage.
Communication services, percent change from previous quarter
Quarter Previously published Revised
December 2008 2.8 2.9
March 2009 -3.6 -3.9
June 2009 1.3 2.8
September 2009 3.9 2.6
December 2009 -2.3 -1.1
March 2010 -2.2 -2.0
June 2010 -2.6 -0.7

 

Updated livestock numbers

Livestock numbers for 2009 and 2010 were updated due to new information. The updated livestock numbers affect the agriculture component of the production measure of GDP, as well as inventories on the expenditure measure of GDP.

Impact of GST rise on GDP

On 1 October 2010, (the December 2010 quarter) the rate of GST rose from 12.5 percent to 15 percent. GST is a tax that is imposed on the final consumption of most goods and services.

The headline measure of GDP is a chain-volume measure, which means that the impact of prices has been removed. GST is a component of prices, so chain-volume measures are not directly affected by the GST rise. Chain-volume measures may be indirectly affected, if there is a change in behaviour due to the price change.

Conceptually, the current price expenditure measure of GDP (GDE) includes GST. This means that when GST goes up, if everything else remains the same, current price GDE will go up. It is important to note that not all components of GDE will go up. As with GDP, chain-volume measures of GDE are not directly affected by the rise in GST.

Household final consumption expendtiture (HCE) measures the goods and services consumed by households. In current prices HCE measures the total cost of goods and services and includes GST. Indirectly, the volume of goods and services may be influenced by the rise in GST. For example, some people may bring forward purchases of some goods and services before GST is raised.

Indicator series that are used in HCE that are GST exclusive have the GST added back later in the compilation process.

Indicator series

The following series that are used in the compilation of GDP are collected exclusive of GST:

  • retail trade
  • wholesale trade
  • economic survey of manufacturing
  • building work put in place.

Impact of the Canterbury earthquake

GDP measures the goods and services produced by an economy in a given period of time. Clean up and reconstruction activity in the wake of the September 2010 earthquake in Canterbury will be significant. Much construction work is required to rebuild houses and buildings and even the activity related to demolition of buildings is included in GDP. Data for rebuilding work would come through building consents initially, then the Building Work Put in Place Survey (QBAS), then finally into the construction component of GDP. While this work is a boost to GDP, it replaces assets that have been lost.

In the short term, the earthquake could have had a negative impact on GDP as many Canterbury businesses were closed and people were unable to go to work. This effect could come through the Retail Trade Survey, Wholesale Trade Survey, and the Economic Survey of Manufacturing. Disruption to infrastructure such as roads, ports, and the airport could also impact on GDP. However, it is important to note that any change to the level of activity could be due to a number of factors, and for most components it is not possible to isolate the impact of the earthquake.

Impact on capital stock

GDP is not a complete measure of the health of the economy. The balance sheet (assets and liabilities) is important too. Many homes and businesses were destroyed by the earthquake. Some estimates put the cost of assets destroyed at upwards of $5 billion. This represents New Zealand's capital assets that can no longer be used in production.

While New Zealand does not have full balance sheets for the economy, the national accounts measure the capital stock of New Zealand in the perpetual inventory model (PIM). This model, which measures the stock of New Zealand's capital assets, will be adjusted for buildings and equipment that have been written off. New Zealand's capital stock measures are published in the annual national accounts release. The impact of the earthquake on New Zealand's capital stock will not be shown until the year ended March 2011 accounts are released, in November 2011.

The impact of insurance and reinsurance on the balance of payments and international investment position statistics are discussed in the paper Insurance impact of the Canterbury earthquakes on New Zealand's international accounts.

Next release...

Gross Domestic Product: December 2010 quarter will be released on 24 March 2011.

For technical information contact:
Nicola Argyle or Andrew Petty
Wellington 04 931 4600
Email: info@stats.govt.nz

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