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Weekly Commentary

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Through the worst

Mon, Jun 29 2009, 05:36 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

New Zealand remained deep in the grips of recession in the first quarter of this year. However, more recent indicators suggest that the economy may be entering a bottoming-out phase.

GDP fell by 1% in the March quarter, following the same-sized contraction in the December 2008 quarter (revised down from -0.9%). That makes it five straight quarters of decline in the current recession, something that hasn’t been observed since the official statistics began in 1977. The fall was close to our expectation of -0.9% and in line with the RBNZ’s most recent forecast.

The tough economic conditions internationally in late 2008 spooked domestic consumers and businesses.
Consumers cut spending by 1.4%, with spending on durable items taking the biggest hit. This was despite a recent income tax cut and anticipation of another in April, lower petrol prices, and a succession of interest rate cuts.
House price declines, job insecurity and the international fear factor outweighed the positives. The decline in consumer spending in Q1 was the largest drop since 1991. Businesses felt no better, and slashed investment by 7.3% over the quarter.

Manufacturers, especially makers of durable goods, were slammed by the lack of demand. We estimate that the 7.2% drop in manufacturing output was the biggest quarterly fall since 1977. While New Zealand manufacturers have fared better than in some regions (Germany and Japan spring to mind), few will have escaped the fallout of the global credit crunch, as purchases of durable goods are delayed or cancelled.

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Published on  Mon, Jun 29 2009, 05:41 GMT