Construction work likely to be New Zealand’s main growth driver in coming years

New Zealand's total building work put in place expanded 2.5% in Q4, as compared with Q3's growth of 0.5%. Market had priced in a growth of 2%. The growth was mainly driven by solid activity in the residential building sector, which grew 2.8% in seasonally adjusted volume terms. Auckland's activity growth countered Canterbury's weak residential building market. The building work put in place in Auckland was almost 14% higher in Q4 2015 from Q4 2014 in terms of value. Meanwhile, non-residential activity also expanded, up 2.3% in Q4 as some of the increase in projects permit midyear started to be built.

There are signs that Canterbury's residential rebuild in coming down. Building activity in the region fell 0.5% in seasonally adjusted values in December after recording weak growth in the previous two quarters. The activity grew in Canterbury, Auckland and the rest of New Zealand in seasonally-adjusted value terms, indexed to Canterbury's activity's peak.

The projected rise in building work to be put in place will have the upward impact on GDP growth. Construction work is set to be one the main drivers of New Zealand's economic growth in the coming few years, in spite of activity in Canterbury slowing down. At present, residential gross fixed capital formation is increasing sharply in importance in the major GDP scenario from below 5% of quarterly GDP in mid-2012 to more than 6% today.

"We expect this role for residential construction to top out at a little under 7%. Non-residential gross fixed capital formation is expected to grow a little more moderately, but is still expected to reach almost 3% of GDP in the next couple of years", says Westpac.