NZ is emerging from recession, risks enduring 'imbalances' Treasury says

Monday 7th September 2009

New Zealand’s economy probably emerged from recession this quarter, helped by an improvement in global conditions, increased migration and a revival in business and consumer confidence, the Treasury said.

A contraction in the second quarter, the sixth in a row, marked the end of New Zealand’s worst economic downturn in 30 years, according to the Treasury’s monthly economic indicators for August, posted on the department’s website.

International data point to “an improved outlook, but still fragile recovery,” the Treasury said. “A small decline in real GDP in the June quarter is likely to represent the last quarter of contraction in the current sequence which dates back to March 2008.”

Business confidence continued to climb last month, helped by a revival in construction activity and a stabilising property market. A net 34% of firms expect general business conditions to improve in the next 12 months, according to the National Bank Business Outlook. New Zealand consumers are also happier, according to the Roy Morgan Research survey last week, which showed the highest confidence rating since March 2008.

The Treasury said unemployment would continue to rise, though the peak is now forecast to be 7.5% next year, down from the 8% level it had previously predicted. Unemployment was 6% in the second quarter. It said the composition of growth is “likely to be unfavourable for the unwinding of imbalances.”

Gains in the kiwi dollar mean it was about 21% higher in July and August than the Treasury predicted in the Budget Forecasts, limiting the benefits of improved export demand. At the same time, there are signs that domestic spending is picking up.

“Together these factors suggest that imbalances such as the current account deficit and household indebtedness are less likely to unwind significantly,” the Treasury said.

Businesswire.co.nz

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