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Budget 2013 Home Page Budget Economic and Fiscal Update 2013

Recent Economic Developments

Economic growth picked up pace at the end of 2012...

After a period of weak growth in the middle of 2012, New Zealand's real GDP rose 1.5% in the December 2012 quarter. Growth was broad-based across industries, with the forestry and logging sector performing well, in part owing to good harvesting conditions and robust demand from China. Construction activity also accelerated, as the Canterbury rebuild began to get underway in earnest. However, while real GDP growth was strong in the quarter, nominal GDP growth continued to be low, declining for the third time in four quarters, as the terms of trade fell further and pricing pressures remained weak in the economy.

The strong December quarter real GDP growth contributed to a solid 2012 year overall for the economy. Real production GDP rose 2.5% in the year to 2012, the strongest annual average growth rate since March 2008 and faster than many other developed economies (Figure 1.2). Despite solid growth in real GDP, employment growth has been weak and the unemployment rate remains elevated. The recent performance of the labour market is discussed in more detail in the box “Recent Labour Market Conditions” (page 21).

Figure 1.2 - Real GDP growth rates
Figure 1.2 - Real GDP growth rates.
Sources: Statistics New Zealand, Haver Analytics

...with indicators pointing to ongoing strength in early 2013...

Indicators point to continuing growth in early 2013. Higher business confidence points to increased activity, which should translate into additional business investment. Consumer confidence has also picked up in 2013, suggesting ongoing consumption growth, although some moderation is expected from the surge in private consumption seen in the December quarter. Other indicators, such as the Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI), point to a recovery in the manufacturing sector and continuation of growth in the service sector respectively.

...but drought will provide some offset

The impact of the drought will provide some offset to the positive growth suggested by forward-looking indicators. The drought will lower agricultural output, particularly in the dairy sector, as well as have other impacts throughout the economy. The impacts of the drought are discussed in more detail in the box “Economic Impacts of the Drought” (page 17).

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