Opinion: 'U' or 'L' economy in 2009?

By Roger J Kerr A flat-bottomed "U" shaped economic recovery favoured over the doomsday "L" I expect the debate to intensify over coming weeks and months as to whether the NZ economy can recover to positive GDP growth in 2009 or not. Currently there are a wide divergence of opinions, ranging from the doom and gloom of the majority of bank economists through to the more optimistic GDP growth forecasts of NZIER and the RBNZ. This Thursday we will get the Treasury's updated economic forecasts and there is now doubt that their outlook will be substantially more negative than their pre-election economic update. I am still tending towards the more optimistic side, but prefaced with conditions around export prices and volumes. I am still confident that an export-led recovery will start in the second half of 2009 and the return to positive GDP numbers will mean the RBNZ will not be able to forecast sub-1% CPI inflation, and thus the current market pricing/forecasts of 3.5% interest rates will not be fulfilled. As always, the outlook has to be subject to international economic developments, but I also remain confident that the fiscal and monetary stimulus now in place all over will eventually restore consumer and investor confidence in 2009. So the upshot is the OCR and 90-day rates probably going no lower than 4.50% in early 2009 as the economic picture slowly starts to improve. The best lead indicator here in NZ will be consumer and business confidence surveys, and I anticipate that these will not deteriorate any further and start to improve in the first quarter 2009.     "”"”"”"”"” *Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com.