Recession was shallower than expected, recovery to be stronger: NZIER consensus
By Peter Kerr
Dec. 15 (BusinessWire) – Economic forecasters say New Zealand’s recession was shallower than expected and next year’s
recovery will be stronger than predicted six months ago – though they differ widely on the extent of the rebound.
The economy is expected to contract 0.4% in the year ending March 31, 2010, milder than the 1.6% contraction forecast in
June, according to a consensus forecast survey released today by the New Zealand Institute of Economic Research. The
survey outlook for the year beyond next March is a very positive 2.8% GDP growth, though there is an unusually wide
forecast range of 1.8% to 3.7%.
“What’s really surprising is how divergent forecasters’ views are across the board,” said NZIER economist Shamubeel
Eaqub. “This is across everything including growth, current account balances, inflation and especially the level of the
Kiwi dollar.”
The forecasters expect unemployment to remain stubbornly high at 7% over the March 2010 and March 2011 years, before
improving to 6.3% in March 2012. Such prolonged and elevated levels of unemployment will be a dampening factor for
households and industries.
Of all the survey data, the most divergent of forecast views is around the future level of the trade-weighted index of
the New Zealand dollar. Some predict the TWI will climb to above 70 in the next two years, from 65.38 now. Others
predict it will decline to as low as 50 – a level last reached in 2001.
“It’s hard to tell what is going to be the big catalyst for importers and exporters going forward,” said Eaqub. While a
weak U.S. dollar hasn’t helped those traders linked to its fortunes “forecasters believe a favourable Australian dollar
and euro rate will help stage a relatively strong rebound for exporters.”
The Christmas period is going to be a test for retailers, he said. There are a number of risks and uncertainties, with
interest rates set to increase, the volume of sales in the housing market slowing and the Reserve Bank not yet
indicating how much it will increase interest rates.
“Households also appear to have learned from the recession and have kept a cap on spending,” Eaqub said. “They’re more
cautious than in recent years, and when lowering spending on discretionary goods such as LCD TVs, have put more of it
into buying things such as basic food groups. The hope is households may be moving to a bit more of a sustainable path.”
(BusinessWire)