New Zealand...Recession Tipped to be Over Next Year

December 4, 2008

A pick-up in consumer spending will haul the economy out of recession in the first half of next year, the New Zealand Institute of Economic Research predicts. While the institute still predicts the current recession to remain relatively shallow, it also expects the subsequent recovery to be more gradual than previously forecast. That is largely because tighter credit and the lagged effect of prolonged high interest rates in recent months will dampen growth in investment, while weaker growth among New Zealand's trading partners will dampen net exports. The institute's Quarterly Predictions, released yesterday, expect the recession - already official for the first half of the year - to have continued through the September and December quarters as well. "In annual terms we expect the lowest point to be the year ended March 2009, when activity will contract 0.1 per cent." But the institute expects "positive albeit modest" growth over the four quarters of 2009/10, enough to lift annual growth to 1.6 per cent by March 2010 and return to trend rates of growth around 3.3 per cent by March 2011. "The recovery in economic growth will be led by an upturn in private consumption in the first half of 2009, stimulated by lower petrol prices, lower interest rates, positive net immigration, wage inflation and the tax cuts in October this year and April next year."