20 Sep 2013

Growth figures show underlying strength

7:31 am on 20 September 2013

The economy is showing underlying strength despite the agricultural sector taking a knock from the drought earlier this year.

Official figures show the pace of economic growth has eased. The economy expanded a seasonally adjusted 0.2% in the three months to June, compared with an upwardly revised 0.4% expansion in the previous quarter from 0.3%.

The June quarter's growth was still stronger than expected and a number of economists say that is positive news, given how the drought weighed on growth, particularly in dairy production, with activity in the farming sector falling nearly 6.5% in the second quarter.

But that wasn't enough to offset activity in other sectors, such as business services from architects and engineers, and increased construction.

ANZ senior economist Mark Smith says that growth in the construction sector is beginning to filter through to the rest of the economy.

He says the construction sector is a major influence on manufacturing, so as the rebuilding of Christchurch picks up and the construction sector rebounds, the recovery is likely to broaden to other sectors of the economy.

Mr Smith says there has been a greater impact on investment this quarter but there will need to be a lot more to convince economists that the expansion will continue smoothly.

He says the drought was the major headwind to growth in the first part of the year, and he expects a broad-based rebound in activity for the second half of the year.

Mr Smith says a number of things will drive that, including a rebound in agricultural production after the drought, the increase in construction activity filtering through to the rest of the economy and strength in the services sector underpinned by a more buoyant household sector.