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What recession?

23 June 2006

What recession?

Today’s GDP data for the March quarter confirms that speculation six months ago that New Zealand was heading for a recession was overblown, says Infometrics senior economist Gareth Kiernan. The 1.4% growth in consumer spending over the last six months shows that households are coping with the higher interest rates and high petrol prices.

The GDP data coincides with the release of Infometrics’ quarterly forecasts, which predict that economic growth will recover to over 3%pa by early 2008. Infometrics believes conditions are pretty positive for a rebound in exports – the dollar has fallen substantially, and global demand remains robust. Indicators of manufacturing activity confirm a turnaround is occurring in this sector.

Growth in domestic spending has slowed from 8.6% to 4.2%pa over the last 18 months, and will cool further during the next year – households and businesses not involved in exporting will remain cautious, with the Reserve Bank unlikely to cut interest rates until 2007, according to Mr Kiernan.

Although slower household spending and business investment growth will push down GDP, their negative effect will be offset by correspondingly weaker demand for imports – both consumer goods and investment equipment. Import volumes have already dropped 4.6% over the last six months.

New Zealand’s medium-term growth prospects look good according to Infometrics, with the economy expected to grow at close to 3%pa on average over the next five years.


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