New Zealand's Construction, Manufacturing Shrink, Signaling Weak Recovery
New Zealand construction and manufacturing contracted in the third quarter, government reports showed, adding to the case for the nation’s central bank to keep interest rates unchanged until a recovery strengthens.
The value of residential construction fell 5.3 percent from the second quarter, excluding inflation, Statistics New Zealand said in Wellington today. Non-residential work dropped 0.7 percent. Manufacturing sales volumes fell for a third straight quarter, declining 1.4 percent, according to a separate report.
A weakening housing market and sluggish manufacturing signal third-quarter gross domestic product probably didn’t perform much better than the 0.2 percent expansion during the three months ended June 30. Reserve Bank of New Zealand Governor Alan Bollard is expected to keep interest rates unchanged at a meeting tomorrow, and economists predict an increase won’t happen until March at the earliest.
“While construction activity was close to expectations, manufacturing production was much weaker,” said Jane Turner, an economist at ASB Bank Ltd. in Auckland. “As a result, we have revised down our forecast for GDP growth to just 0.2 percent from 0.5 percent.”
In September, the central bank forecast 0.8 percent GDP growth for the quarter, an estimate that was completed before a magnitude 7 earthquake rocked Canterbury province on Sept. 4.
Turner said the impact of the temblor on local service industries such as retailing and hospitality is unknown, which creates a “large degree of uncertainty” over forecasts. Economists at ANZ National Bank Ltd. and Goldman Sachs & Partners New Zealand Ltd., who also expect 0.2 percent growth, today said they couldn’t rule out the economy contracted in the third quarter.
Bollard will update his economic forecasts tomorrow, when he is also expected to keep the official cash rate unchanged at 3 percent, according to all 14 economists surveyed this week by Bloomberg News. Ten analysts expect the rate will be unchanged until March and four see the first increase in the second quarter.
Residential construction fell in the three months to Sept. 30 after rising 9.7 percent in the second quarter. Building was 13 percent higher than in the year-earlier period, which marked a recent trough in such work, the statistics agency said.
Construction is expected to increase next year as the rebuilding of homes in Canterbury accelerates, Turner said.
Manufacturing volumes excluding the volatile meat and dairy industries fell 1.9 percent, today’s report showed. Meat and dairy sales dropped 0.9 percent.
Volumes are near the lowest in 10 years, the statistics agency said. The quarterly decline was led by paper, timber and chemical production, it said.
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