Annual economic growth has slowed to its weakest level in nearly six years as growth in service industries offset construction and manufacturing weakness, leaving open the prospects of another cut in interest rates by the end of the year.
Gross domestic product (GDP), a broad measure of the health of the economy, rose a seasonally adjusted 0.5 percent for the three months ended June, in line with forecasts but down on the the previous quarter.
“Service industries, which represent about two-thirds of the economy, were the main contributor to GDP growth in the quarter, rising 0.7 percent off the back of a subdued result in the March 2019 quarter ,” Stats NZ senior manager Gary Dunnet said.
Annual growth slowed to 2.1 percent, the slowest since the end of 2013.
Much of the growth in services came from the arts and recreation, public administration, transport, hiring and real estate group, all of which 1 percent or more. Growth in retail and accommodation was more modest. Primary industries also bounced back after two poor quarters when weather affected production.
The notable weak spots were construction, particularly non-residential, and manufacturing, with less meat and dairy production.
The GDP-per capita, which is a measure of the country’s standard of living and is influenced by migration gains, grew by 0.2 percent for the quarter and by 0.5 percent for the year, pointing to continued weak productivity.
Recent economic releases have pointed to a marked slowdown in manufacturing, lower growth in services, and deeply pessimistic business sentiment with expectations of lower profits, less investment, and possibly shedding staff.
An economist said the data showed the economy was running out of steam with future risks to the downside, and likely to get another interest rate cut from the Reserve Bank.
“A continued lack of confidence from firms and households, combined with heightened uncertainty offshore, suggests forecast of strengthening growth may struggle to materialise,” Kiwibank chief economist Jarrod Kerr said.
“We expect that the RBNZ will be forced to act by further cutting the OCR (official cash rate) to 0.75 pct in November.”
He said it as also time for the government to step up and spend to stimulate growth.
“What’s needed to snap us out of limbo, is strong, wise, and expansive fiscal policy,” Kerr said.
Financial markets were largely unmoved by the data.
This article was originally published on RNZ and re-published with permission.