Recovery not far off, unemployment to linger

Wednesday 3rd June 2009

New Zealand’s economy will probably start to recover later this year, though the effects of the first recession in a decade, including high unemployment, will linger longer.

The New Zealand Institute of Economic Research has trimmed its forecasts for economic growth this year, compared to its March estimates. Gross domestic product will shrink 1.4% in the year ending March 31, 2010. The NZIER predicts GDP shrank 2% in the 12 months through March this year, worse than the1.1% contraction it previously forecast.

Unemployment will continue to rise through 2011 and peak at 7.8%, higher than its previous forecast of a rate of around 6% until mid-2012.

“The impact of the recession will take some time to unwind,” said principal economist Shamubeel Eaqub. “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.”

The country fell into recession last year and probably extended its contraction into 2009, shrinking 0.9% in the first quarter and dwindling further in the latest three months, according to the Treasury.

The NZIER estimates real GDP per capita will remain below pre-recession levels until late 2011, equating to a reduced income of around $10,500 per person every year until 2014.

It predicts growth will pick up to an annual rate of 3.5% from March 2011 and persist at that level for a further five years.

The National Bank Business Outlook, a leading indicator of business confidence, turned positive last month for the first time in eight months as the economic prospects for New Zealand improve. While chief economist Cameron Bagrie said a technical recovery was likely, the economy wouldn’t return to its late-2007 levels until 2011.

Businesswire.co.nz

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