NZIER waves shroud on Christmas season
By Pattrick Smellie
Nov. 30 (BusinessDesk) – A double dip recession remains on the cards for New Zealand, with a recent slump in house sales
indicating a tough Christmas for businesses and households, says the New Zealand Institute of Economic Research in its
latest quarterly forecasts.
A sustained and more broadly based economic recovery is still anticipated in the latter half of next year, but for now
“the economic recovery has reversed,” says NZIER’s principal economist, Shamubeel Eaqub in a statement this morning
releasing its December quarter forecasts.
Consistently gloomy this year, NZIER has also been proven broadly right in its fear about the weakness of the cyclical
elements of New Zealand’s economic recovery after the global financial crisis.
“We expect wintry economic conditions this summer,” said Eaqub. “Critical indicators like house sales and domestic
trading activity point to a slow finish to the year, even without the destruction and disruption of the Canterbury
earthquake in early September.
“A double dip recession cannot be ruled out, but it is not our central scenario. Instead, we expect weak activity over
coming months, before a more sustained recovery from mid 2011.”
While the weak economy means the Reserve Bank can wait until June next year before raising interest rates, NZIER warns
that the New Zealand dollar exchange rate is likely to remain elevated because of global “currency wars”, and that there
will be little that policy-makers here can do to stop that.
NZIER is forecasting an anaemic 1.7% rate of economic growth this year, rising to 2.3% and 2.9% in 2011 and 2012
respectively.
The forecaster says “the recovery will be shallow and volatile”, and that the global outlook remains “full of risks” and
they are rising.
“Quantitative easing, fiscal austerity and bail outs are prevalent. The solution to the GFC is less spending and more
saving. This will hurt the demand for our exports: 41% of New Zealand’s exports go to countries with public debt in
excess of 50% of GDP,” said Eaqub.
“Businesses should plan for a shallow economic recovery. Economic activity will be weak through late 2010 and early
2011, but we expect a more sustainable and broad based recovery from mid 2011.
“For businesses with tight capacity this is the time to invest; to capitalise on a more sustainable recovery from mid
2011. For those with excess capacity, it will be a case of prudent risk management in the soft patch.”
(BusinessDesk)