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Bank Says Economic Weakness Will Be Short-Lived

Despite the negative June quarter GDP result, the ASB Bank believes economic weakness will be short lived.

Writing in the bank’s Quarterly Prospects for business customers, ASB Bank economist Rozanna Wozniak expects growth to return to year-on-year levels of around 3%.

Ms Wozniak offers several reasons for a positive outlook:
 Some of the weakness is due to one-off factors, including:
– A decline in residential construction. This fall was partly a correction from the very strong activity in the previous quarter;
– Dairy cows dried off early, affecting the seasonal adjustment process;
– A correction after the pre-Y2K stock-build up in the latter part of 1999.
 The domestic economy is weak, but not comatose, with growth in retail sales averaging 0.7-0.9% a month.
 The benefits of the rural economy will gather momentum next year as farmers start to focus less on debt reduction. With the busy spring season over, farmers will now have more time to catch up on deferred maintenance and, in the case of dairy farmers, continue with expansion plans.
 Although the business sector is borrowing less money, there are continued strong imports of capital equipment.
 Exports will continue to make a positive contribution to growth.

That export growth is not merely currency-driven. The currency is only one of four components contributing to our best export growth in 15 years. The others are rising world commodity prices, a strong world economy and good weather at home. The result is merchandise export volumes up 11.2% in the June quarter on the levels of the previous year and export prices up 12.2%.

In addition, growth in non-commodity manufactured exports is still running at around 20%, while there is a growing contribution from high value-added niche industries such as film making, marine and wine.

However, conditions will remain tough for the retail sector, with only modest spending increases. Growth will be constrained by high debt levels, little wealth effect from the subdued housing sector and equity markets, slow employment growth and rising prices for imported goods.

For further information:

Rozanna Wozniak
ASB BANK Economist - Phone (09) 374 8604

Released by Network Communications (Peter Hallwright)
Phone 09 379-3154 or 025 444 534.

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