GDP and Inflation

Economic growth in concrete terms

Tuesday March 20, 2018 Julian Williams

Production statistics for the December 2017 quarter, released by Statistics New Zealand show the economy, as measured by Gross Domestic Product (GDP), grew 0.6 percent in the December 2017 quarter. Statistics New Zealand noted that: “Growth was widespread across many service industries, with business services, and rental hiring and real estate services providing momentum,” and “Retail trade and wholesale trade were also key contributors to growth this quarter”. It’s interesting that growth in construction services are not mentioned, because it constitutes such a large part of economic activity measured by GDP. Let’s investigate.

 

Construction activity is important for our economy. In the five years to 2017 the aggregate of GDP in 2009/10 prices was about $1,101 billion. The largest industry contributors to this were: construction (13%); professional, scientific, technical administration, and support (13%); rental, hiring and real estate services (11%); and retail trade (10%). Part of the contribution of the non-construction industries relied on construction activity for their services, in the same way that much of our economy relies on primary production, even though it makes up a small percentage of total GDP. The chart below shows that construction GDP has a seasonal cycle and the December quarter is a slow one. Seasonal holidays account for this. The chart also shows that construction activity is continuing its strong uptrend, which bodes well for our economy.

 

Figure 1. Construction GDP (quarterly production, $billion)

 

graph 20 03 01

 

 

Construction activity varies by region, as we would expect. Sometimes we can measure it using the volume of ready mixed concrete poured on building sites. The chart below shows that concrete poured in Auckland is levelling off, while Canterbury’s is floating down following a decline in rebuild activity. Waikato, Bay of Plenty, by comparison, is boxing ahead. Lots of other regions don’t square so well. If construction is so important to our economy, what do you think this all says for regional development?

 

Figure 2. Ready mixed concrete by region (year to December, million cubic metres) 

 

graph 20 03 02