Spring brings brighter mood, but unemployment looms

Tuesday 22nd September 2009

Economists have shed their gloomy winter outlooks in favour of a more optimistic view on the state of the New Zealand economy, even as rising unemployment casts a shadow over the nation’s recovery.

The economy will shrink 1.3% in the year ending March 31, 2010, according to a survey of economists by the New Zealand Institute of Economic Research (NZIER). That’s better than the 1.6% contraction predicted in June.

Growth will resume at a 2.7% pace in the following year, slower than the 2.8% forecast three months ago. Still, the prospect of higher unemployment remains grim, and is expected to climb to 7.3% in 2010, the highest in a decade, before falling back to 6.7% the following year.

“For the first time in over a year, economic growth prospects have been revised upwards in the NZIER consensus forecasts survey,” economist Claire Gall said in her report. “Surveyed forecasts remain pessimistic on the labour market,” with the jobless rate climbing from a current 6% and a further 30,000 job losses expected by March 2011,” she said.

This month, central bank Governor Alan Bollard said New Zealand’s economy probably climbed out of its first recession in 10 years this quarter after six consecutive quarters of contraction.

Gross domestic product probably shrank 0.1% in the three months ended June 30, according to economists, and data today showed the current account deficit shrank to 5.9% of GDP, its lowest level in five years, according to Statistics New Zealand.

The kiwi dollar, which has soared more than 40% to 71.65 US cents from its sub-50 cents low in March, has threatened the country’s recovery, and thwarted the economy’s rebalancing.

Economists in the NZIER survey were mixed on whether the kiwi will appreciate or depreciate from here, and Gall said it could have a big role “in the ultimate durability of the current recovery.”

The return to growth has been underpinned by a revival in the property market, with house prices gaining 4.4% over the past four months. Still, Bollard has talked down the prospect of a new housing bubble, saying the recent gains were on the back of an unusually low number of listings.

Rising inbound migration has supported demand for new housing, as a net 15,600 people came to New Zealand in the 12 months ended August 31.

The survey’s expectations for exports improved significantly, with the consensus picking a 1.1% annual contraction in the year through March 31, 2010. That’s smaller than the 4.1% previously predicted.

Fonterra Cooperative Group, the world’s largest dairy exporter, today boosted its forecast pay-out to farmers 55 cents to $5.10 per kilogram of milk solids.

Businesswire.co.nz

Comments from our readers

No comments yet