For the year to June, GDP rose 0.7 per cent compared to a year earlier. It was the first annual rise in GDP since the year to September 2008.
In particular, the impact of the Northland drought had a greater than expected impact on agricultural production, which then fed through to extremely weak manufacturing activity, the ASB economists said. Agricultural activity fell 2.1 per cent during the second quarter, due to a 1 per cent fall in milk production.
Much of the weakness in manufacturing, which fell 4 per cent in the June quarter, was likely related to weak slaughter activity and the lower milk production.
Communications activity fell sharply for a third consecutive quarter, dropping 2.6 per cent in the latest period, with SNZ noting that spending on fixed line and mobile calls had declined.
Weakness in that industry was a bit baffling. It might reflect tighter household budgets, or a change in usage behaviour, such as from texting to tweeting, the ASB economists said.
But they also noted that substantial falls in communications followed the launch of the 2degrees mobile network in August 2009, with SNZ unable to specifically comment on whether it was collecting usage data from the new network.
Beyond the weakness in agriculture and communications was a respectable performance from many other areas, with recovery in retail volumes and construction activity providing large support to growth.
Export volume growth remained strong, but was met by a large run-down in inventories rather than by production. As a result, the ASB economists expected inventories would be rebuilt over the next few quarters which should add to growth.
They were confident manufacturing activity was likely to recover in the next few quarters, excluding the impact of the Canterbury earthquake, and said they were encouraged by a strong lift in investment.