NZIER sees recession until Dec qtr, then strong rebound

The New Zealand Institute of Economic Research has forecast the recession that started in early 2008 will continue until the December quarter of 2009, but it says the economy will rebound strongly through the five years from 2010 with average growth rates of 3.5%. However, NZIER sees real GDP per capita not returning to pre-recession levels until late 2011, meaning it will have taken 4 years to catch up to where per capita income was at the end of 2007. The trend will be well below that seen in the past decade, equating to reduced income of around NZ$10,500 per person per year over the next five years. Here is the full statement below from NZIER.

"The recession that began in early 2008 is likely to linger through to the September quarter of 2009. Signs of life in leading indicators, against a backdrop of significant stimulus from monetary and fiscal policy, means we are cautiously optimistic about a recovery from later this year", said NZIER in the June 2009 edition of Quarterly Predictions, released today. NZIER expect quarterly economic growth to turn positive in the December quarter, led by migration induced population growth, and traction from considerable stimulus in the economy. Following an estimated 2% contraction in the March 2009 year, NZIER expect another year of contraction (-1.4%) in the March 2010 year. This will be followed by a recovery path averaging 3.5% over the following five years. "Despite our forecast of a seemingly strong recovery, the impact of the recession will take some time to unwind. We estimate real GDP per capita "“ economic wide income per capita "“ will not return to the pre-recession level until late 2011. The trend will be well below that seen in the past decade, equating to reduced income of around $10,500 per person per year over the next five years. "The economic environment will be difficult for businesses. Profitability is likely to remain a challenge given subdued demand and reduced pricing power; cost reduction strategies may be required for some time yet. "For households, rising unemployment will persist until mid 2011, when the unemployment rate is likely to peak at 7.8%. A weak labour market and lagged effects of the recession could suppress wage growth for some time."