21 Sep 2012

Economists cautious about increased growth

10:07 am on 21 September 2012

Economists say the growth experienced in the three months to June has not moved through to the underlying domestic economy.

Official figures show gross domestic product (GDP) rose 0.6% in the three months to June, off the back of a strong end to the milk production season and the rebuilding of roads, bridges and houses in Canterbury.

On an annual basis, the economy expanded 2% - the strongest growth in four years.

Infometrics economist Matt Nolan says on the surface the figures look good, but the growth in agriculture and construction masks weaker parts of the economy.

Mr Nolan says the economy will continue to grow, but at a slower pace.

He says agriculture will pull back because it was at capacity with an ideal growing season this year.

He says the rebuild is pushing up growth, but the Government is pulling things back and households are uncertain with indications that manufacturing is struggling.

Mr Nolan says it is likely there will still be weak growth and consumer confidence is also still weak.

Household expenditure was muted for the quarter, up 0.2%.

Council of Trade Unions economist Bill Rosenberg says the economy is not creating jobs and people will continue to be cautious about spending.

Mr Rosenberg says the indications are that low income households are suffering due to low wage growth and because many households don't have as much work as previously, leading to a drop in their income.

He says the situation is likely to be subdued for the foreseeable future.

"We need to get back into that cycle of more business confidence based on people spending and buying locally made goods."