N.Z. Construction Declines, Subtracting From Economic Growth

By Tracy Withers

Sept. 8 (Bloomberg) -- New Zealand construction work contracted for a second straight quarter, adding to signs the economy was in a recession as record-high interest rates slowed domestic demand.

Construction adjusted for inflation fell 5.8 percent from the first quarter, Statistics New Zealand said in a report released in Wellington today. Residential building declined 7.3 percent and commercial construction dropped 3.6 percent.

House prices are falling and property sales reached a 16- year low in June as high credit costs and fuel prices eroded consumer confidence. The slowing economy prompted Reserve Bank Governor Alan Bollard to cut the benchmark interest rate for the first time in five years in July, and he will follow with a second reduction this week, according to all 14 economists surveyed by Bloomberg News.

``Residential construction has borne the brunt of the current economic slowdown and has now fallen for three consecutive quarters,'' said Jane Turner, an economist at ASB Bank Ltd. in Auckland. The figures ``suggest some downside risk to our current forecast for a 0.3 percent decline in gross domestic product.''

The government publishes its second-quarter GDP report on Sept. 26. The economy shrank 0.3 percent in the first quarter, putting the nation on the brink of its first recession in 10 years. At least nine of 13 economists surveyed by Bloomberg News expect the economy contracted in the three months to June.

Retail sales fell the most in at least 13 years in the second quarter. Economists are awaiting reports the next week on net exports and manufacturing production before completing their economic growth forecasts.

House Prices

New Zealand house prices fell 4.5 percent in August from a year earlier, Quotable Value New Zealand Ltd., the government valuation agency, said in Wellington today. That followed a 2.2 percent drop in July, the first decline since the series began in February 2005.

House prices are falling and the number of sales is declining as sellers either take their homes off the market or are forced to accept less than they first expected, Quotable Value said.

Residential construction fell 13 percent from the same quarter a year earlier, the statistics agency said today. Construction decreased 6.9 percent in the first quarter and 2.2 percent in the three months ended Dec. 31.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.