Fourth quarter of economic contraction

The economy contracted 0.9 percent in the December 2008 quarter, Statistics New Zealand said today. This is the fourth consecutive decline in economic activity, as measured by Gross Domestic Product (GDP).

The main drivers of the decline in economic activity in the latest quarter were the manufacturing and wholesale trade industries. Manufacturing activity declined 3.8 percent in the December 2008 quarter, with nearly all the manufacturing sub-industries recording decreases. The only manufacturing sub-industry to increase this quarter was food and beverage manufacturing. Value added in the wholesale trade industry declined 4.9 percent, the fourth consecutive quarterly decrease. Partly offsetting the declines within GDP was finance, insurance and business services, which was up 2.2 percent in the December 2008 quarter.

On an annual basis, GDP was up 0.2 percent for the December 2008 year. Annual GDP was higher than for the December 2007 year, despite the four quarters of declining activity. This occurred because the economy grew at a faster rate in 2007 than it contracted in 2008.

The expenditure measure of GDP, released concurrently with the production measure, was down 0.6 percent in the December 2008 quarter. Household consumption expenditure, which measures the volume of goods and services purchased by New Zealand households, was flat this quarter. Household spending on durables (which includes cars, furniture and appliances) and non-durables (which includes food and beverages) were both down this quarter. Household spending on services offset these decreases.

Gross fixed capital formation, which measures capital investment in fixed assets, decreased 5.3 percent in the December 2008 quarter. The main categories in which investment declined were residential building (down 14.0 percent), and plant, machinery and equipment (down 4.8 percent). Investment in residential building has decreased for five quarters in a row, reflecting the decline in new housing construction. The decrease in plant, machinery and equipment investment is a result of lower imports of these types of goods.