NZ's construction sector growth at 6-year low

Wellington

NEW ZEALAND'S construction industry is growing at the slowest pace in six years, adding to risks that the economy may struggle to gain momentum.

Construction growth slowed to 1.8 per cent in the year ended June, less than a quarter of the 8.1 per cent pace in the prior year, Statistics New Zealand data showed on Wednesday.

Residential building rose 3.2 per cent, down from 10.2 per cent, while non-residential construction contracted. Economists are watching for signs that economic growth is faltering after the central bank last month said that it wanted to see a pick-up in activity by the end of the year, or it may have to consider an interest rate cut.

While the level of building activity remains high, its sluggish expansion may weigh on growth, which slowed to 2.7 per cent in the first quarter after averaging about 3.5 per cent in the three years through 2017.

"The GDP (gross domestic product) outlook looks softer into the second half of the year," said Liz Kendall, a senior economist at ANZ Bank New Zealand in Wellington.

"Dwelling consent issuance is on a downward trend, and there is also a risk that recent weakening in firms' investment intentions flows through into non-residential work."

While the construction industry is naturally slowing from the heightened activity seen during the rebuilding of Christchurch, after the nation's third-biggest city was devastated by earthquakes in 2011 and 2012, it is also being buffeted by capacity constraints, cost pressures and credit headwinds. BLOOMBERG