Prospects for future growth are strong - Treasurer

Treasurer Bill English said business should not allow the June quarter GDP figure to damage the strength of its confidence in the growth prospects of the New Zealand economy for the three years ahead.

"This result was considerably weaker than expected. Looking forward, however, conditions in the economy are strongly supportive of growth, with low interest rates, a competitive exchange rate and an improving world outlook. Exports are going to recover.

"The 0.3% fall in economic activity in the June quarter comes after three quarters of growth of 0.5%, 0.9% and 0.9%.

"It is important that business does not let the June result cloud their confidence in growth for the next three years. It reminds us, however, that the Government does not have a lot of room to move on fiscal policy.

"The result was driven by a 4.8% drop in export volumes. This arose in part from the lagged effects of the drought and consequent reductions in available meat and dairy export volumes in particular.

"There were signs that the high level of imports in the June quarter may have gone into stocks. Petroleum stocks increased as oil companies anticipated further price increases and some retailers began preparing for possible Y2K computer problems. Stock levels may act as a short-term buffer against future increases in demand for imports.

"While domestic consumption was flat, people continue to invest in housing. Business investment was also maintained at reasonable levels," said Mr English.