Published 26 June 2009

Economic activity declined by 1.0% in the March 2009 quarter, which was slightly more negative than market expectations of a 0.7% fall (Figure 1).  Real GDP has now fallen for five consecutive quarters and is down 2.7% over the year and 3.0% from its peak in the December 2007 quarter.  On an annual average basis, activity is down 1.0%, the worst result since 1992 (Figure 2).

Figure 1: Quarterly Economic Growth

Data table for Figure 1

Figure 2: Annual Average Economic Growth

Data table for Figure 2

A decline in manufacturing activity made the largest contribution to the fall in real GDP over the March 2009 quarter, decreasing by 7.2%.  This is the largest decrease since the series began in 1986.  The decline in manufacturing activity was widespread, with 8 out of the 9 manufacturing sub-industries recording a fall in activity.  Consistent with other data, activity fell in wholesale trade (down 3.8%) and the retail, accommodation & restaurants industry (down 2.9%).  This was a result of household consumption expenditure falling 1.4% as people cut back on spending amidst falling house prices and declining job security.  This was the largest quarterly fall in consumer spending since the June 1991 quarter.  Transport & communications activity also fell strongly, down 4.5%.

On the positive side, construction activity rose (up 0.4%), following four quarters of consecutive declines, while finance, insurance & business services provided a strong positive contribution, rising by 2.3%.  Mining also rose by 2.3% due to the new Maari oil field in Taranaki, which began production in February 2009.  Looking at growth on an expenditure basis, a large positive contribution to output was provided from net exports.  Exports rose by 0.6% boosted by a rise in dairy volumes, while imports fell sharply as a result of weak domestic demand, down 8.6% over the quarter.

Although the New Zealand economy entered recession relatively early, it has not been affected by the global financial crisis to the same extent as many other countries.  In the March 2009 quarter, real GDP fell by more in the UK (-1.9%), the US (-1.5%), and Japan (-3.8%).  Australia on the other hand recorded a rise in economic activity of 0.4% over the March 2009 quarter.

Economic activity is expected to remain weak in the short-term with further falls in activity likely over the June 2009 and September 2009 quarters.  The average expectation in the latest NZIER Consensus Forecasts is for the economy to contract by 0.6% in the June 2009 quarter.  However, most indicators point towards growth resuming in late 2009, although it is expected to be mild.  As a result of the weak economic outlook, the unemployment rate is expected to rise towards 7% in the March 2010 quarter.