New Zealand's recession finally to end in 2Q09

New Zealand's recession finally to end in 2Q09

• We now anticipate a rise in 2Q GDP after upside surprises in retail and export volumes

• Strong NZD will weigh on export-led recovery, but rising global demand will soften the blow

• RBNZ to soon remove explicit easing bias, paving the way for OCR hike in mid-2010

Following the release of the last few missing pieces of New Zealand’s 2Q GDP puzzle, we have upgraded our GDP forecast to show a resumption of growth. Indeed, if the economy does expand in the second quarter, it will mark the end of New Zealand’s prolonged recession, which commenced at the start of 2008. But, although the end of the recession will occur earlier than we had originally anticipated (previously, we forecast declining GDP until 4Q), we maintain our view that the RBNZ will sit on the sidelines until mid-2010, when the next tightening cycle will begin.

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