The New Zealand economy will not shrink for two consecutive quarters, rebounding in the three months to December after contracting in the September quarter, the New Zealand Institute of Economic Research (NZIER) says.
However, the medium term would be challenging as households continued to pay down debt, government restrained spending and the housing market remained soft, NZIER said.
In its Quarterly Survey of Business Opinion (QSBO), the NZIER said the December quarter recovery was concentrated in large firms and in the upper North Island. The economic recovery remained shallow and slow compared to previous cycles, NZIER Principal Economist Shamubeel Eaqub said.
"A return to growth has brightened business mood: seasonally adjusted business confidence rose from -8% to 3%. This confidence is slowly filtering through to new hiring and investment, but this needs to accelerate to drive a sustainable recovery. Continued deleveraging by households, restrained government spending and a soft housing market will influence the medium term outlook,” Eaqub said.
'RBNZ can hold OCR until June'
ASB economist Christina Leung said the Reserve Bank of New Zealand would be encouraged by today's release, "given it indicates a broad-based improvement across sectors albeit at a gradual pace".
"In addition, with inflation pressures looking contained for now there is little urgency to raise the OCR. As such, we expect the June meeting will be the earliest 'live' meeting for the RBNZ to contemplate resuming the reduction of monetary policy stimulus. The survey suggests the economy will regather after Q3’s dip, but that the pace of the underlying recovery is modest rather than strong," Leung said.
Official figures from Statistics New Zealand show the New Zealand economy shrank 0.2% in the September quarter after five consecutive quarters of growth out of a recession that began in March 2008 and lasted five quarters. Stats NZ will release official figures for December quarter GDP on March 24.
See the release from NZIER:
Double-dip recession avoided; medium term challenges linger
NZIER’s Quarterly Survey of Business Opinion (QSBO) shows the economy rebounded in the December 2010 quarter, after contracting in September. Firms’ experienced trading activity improved from -15% to -1% on a seasonally adjusted basis.
The rebound was patchy, concentrated in large firms and in the upper North Island. Activity fell sharply in Canterbury, reflecting post-earthquake economic disruption. Nevertheless, most sectors experienced better conditions in December. There was a particularly large rebound in retail sales volumes. Most of the survey responses were received in the first half of December, so this will not reflect the lacklustre retail environment closer to Christmas.
“The economy rebounded from a weak September quarter avoiding a double dip recession. The recovery remains shallow and slow compared to previous cycles. A return to growth has brightened business mood: seasonally adjusted business confidence rose from -8% to 3%. This confidence is slowly filtering through to new hiring and investment, but this needs to accelerate to drive a sustainable recovery. Continued deleveraging by households, restrained government spending and a soft housing market will influence the medium term outlook,” said Shamubeel Eaqub, Principal Economist at NZIER.
Inflationary pressures ease
Inflation remains subdued and actual prices charged eased slightly (12% from 15%). Cost and price expectations also eased, following earlier GST-related increases. Firms report a lack of demand; this has reduced their ability to raise prices. Capacity pressures, which indicate medium term inflation, moderated. Capacity utilisation of manufacturers and builders eased to the long run average (89.0% from 90.4%). These figures suggest that the RBNZ can continue to hold the OCR at current levels for at least six months.
Labour market improves
Labour market indicators remain resilient. Actual hiring improved (-3% from -12%) and is consistent with better employment opportunities. Labour is becoming harder to find, which will support wage growth over the next year.
Canterbury earthquake disruption; building employment surges
The Canterbury earthquake led to significant economic disruption. Seasonally adjusted trading activity slumped in Canterbury (-33% from -6%, compared to the rest of New Zealand rising from ‑15% to 4%). All sectors reported weaker activity in December, but Merchants showed the largest slump. The region is gearing up for reconstruction activity. Construction employment surged in the region (28% from -11%, while the rest of New Zealand remained weak at -11% from -15%).
Here is ASB economist Christina Leung's take on the QSBO:
Today's QSBO release paints a picture of NZ economic activity gradually improving, while inflation pressures remain contained for now. Our indicator from the experienced own activity measure is in line with a 0.4% increase in GDP over Q4. The report notes the Canterbury earthquake had a negative impact on experienced own activity. Meanwhile, improved profitability underpinned higher business confidence over Q4. Encouragingly, the improvement in activity was broad-based across the sectors.
In particular, the manufacturing sector reported a rebound in activity on the back of improvement in both domestic and export sales. This is positive for the economic recovery given manufacturing is a key sector of the NZ economy, and activity in this sector was one key area of downside surprise in the recent Q3 GDP report.
The recovery in activity means that businesses are keeping expansion plans on track, with a slight improvement in investment intentions (which are still around historical averages) and a net number of businesses continuing to indicate intentions to expand their workforce. Businesses are indicating increased difficulty in finding skilled labour, and we expect this will flow through to emerging wage pressures over the coming year. Meanwhile, businesses reported easing cost pressures, and fewer businesses are reporting they intend to raise prices. These measures suggest inflation pressures remain contained for now.
Implications
The RBNZ will be encouraged by today's release, given it indicates a broad-based improvement across sectors albeit at a gradual pace. In addition, with inflation pressures looking contained for now there is little urgency to raise the OCR. As such, we expect the June meeting will be the earliest 'live' meeting for the RBNZ to contemplate resuming the reduction of monetary policy stimulus. The survey suggests the economy will regather after Q3’s dip, but that the pace of the underlying recovery is modest rather than strong.
(Updates with ASB comment)
29 Comments
A rebound in business activity alongside strong building approvals data is not enough for TD Securities to change its mind about New Zealand’s immediate economic future.
“We have been flagging the notion of a triple dip recession for some time, with a necessary and sufficient condition that Sept qtr GDP contracts. Indeed GDP fell -0.4%, very close to our below-consensus forecast. On our preliminary calculations, Dec qtr isn’t looking much healthier, outside of the Canterbury reconstruction effort, hence another “recession” for New Zealand remains a strong possibility,” TD Securities head of Asia Pacific Research Annette Beacher said.
And this is the bit that Bollard will never tell the peasants about.....
"Rising rates will crush the asset base of all long-term bond holders. The Red Queen trumps again: you try to race ahead of falling asset prices by lowering interest rates to zero, all you do is set up a crushing decline in bond values later when rates inevitably climb back to historic levels."
" . Reinflating asset bubbles to create a "wealth effect" has goosed commodities and inflation. The Fed's money-pumping has certainly goosed the stock market, but it's also goosed commodities, sending grain, sugar, copper, silver, rice etc. to the moon. Consumers are spending more for essentials, and paying sharply higher local government fees and taxes.
As rising commodity prices and taxes sap the consumers' stagnant income, there is little left to support the self-sustaining slow-and-steady growth Goldilocks economy Bernanke wants( Key and bollard too). Rising prices and taxes are drags on an economy burdened by high debt: the Red Queen trumps again, as any modest increases in household income are siphoned off to pay higher prices and taxes.( and principal on mortgage debt along with interest)
The game here is delay and hope...hope and delay some more.
Best to stick to the Lindauer, SK It's on special at Countdown @ $7.99 a bottle. That will leave you a bit left to top up those LAQC's...or whatever they will be called this year.
"...the medium term would be challenging as households continued to pay down debt...and the housing market remained soft..."
I don't understand how the NZIER know we have avoided a double dip...I've just read Alan Bollard's book "Crisis" and he said that the RBNZ rely on info around 3-6 months old...maybe the NZIER should invite Bolly to their office to have a look at the crystal ball that's sitting next to the mini bar...
Sure is Justice...it's lost 12% of it's 'value' since the start of the recession in 07...debasement stealing from those who save...and you were taxed on any earnings too. It's enough to make you look for ways to avoid tax...to move into the shadow world of trading and things like art and gold.
Yeah well yes it is desperate, if all is going so well you don't have to talk up a confidence survey and draw other unrelated conclusions from it do you. Don't need to wait on real statistics from the economy anymore...NZEI should take BNZ advice on economic analysis. No other comments of note from the economist community? Shows the lack of quality of debate or all with the same agenda, talk it up....
'The Day of the BS'....a novel by govt, reserve banks and business, published by the Poodle media and serialised on radio and tv for you. Background music is the tune from sink the Bismark...."we gotta spin the story cozzzzz ..................there's feck all else to do"
How to turn recession into depression!...
Wolly my journey into economics started with the encycolpedia britannica, and most of what is outlined in your link is in there. Although I don't expect to ever fully understand economics I look for the key themes. One of them that was quite outstanding is that there are a wide variety of theories at to why depressions happen, the funny thing is current conditions fulfill almost all of these different scenarios for a major depression.
I don't know if you remember my post from a few months back, but a key word to look for is capitulate. We haven't hit the bottom until you get it.
One of the books I have just read has spoken of the interventionist presidents, and how they inevitably do the most harm.
"The mindset today is let’s pile new debt on top of old debt, and that does not address the problem,” El-Erian said. “You need a mindset change that says let’s look at the fundamentals and let’s look at this as a solvency issue instead of a liquidity issue. That mindset will come when either the market forces it or when the underlying institutions are strong enough for that change.”
For NZ this means pay back debt and stop borrowing to become a saver nation where the wealth remains within and is not escaping through the banks to offshore lenders. It means Govt has to take an axe to itself to bring an end to this being a socialist state always at the mercy of incoming Labour govts intent on playing god with people's lives just to boost their own political egos.
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