Opinion split on recession double-dip

By Brian Fallow

Data will tell us the state of GDP before the quake. Photo / Dean Purcell
Data will tell us the state of GDP before the quake. Photo / Dean Purcell

Just how much, or how little, momentum the economy had before it was sideswiped by last month's earthquake will be revealed when the December quarter national accounts are released on Thursday.

The median estimate among 14 forecasters polled by Reuters is that gross domestic product increased 0.2 per cent in the quarter, which would reverse the September quarter's decline.

But the average forecast was no growth in the quarter, which would mean the economy expanded just 0.5 per cent in 2010.

ASB chief economist Nick Tuffley believes the economy contracted 0.1 per cent in the December quarter, which would meet the conventional definition of a recession - two successive quarters of falling GDP.

In any case it was clear the economic recovery that had been in place in early 2010 stalled over the second half of the year, he said.

"Business confidence fell as activity underperformed expectations, which in turn affected firms' willingness to hire and invest," he said.

"The patchy pace of recovery in the labour market weighed on consumer confidence, contributing to lower consumer spending and housing demand."

Statistics New Zealand's household labour force survey recorded a drop of 0.5 per cent in employment during the quarter, while the unemployment rate rebounded to 6.8 per cent.

Westpac's economists are at the optimistic end of the range in expecting a 0.4 per cent lift in quarterly GDP but say it is not due to any underlying strength in the economy but rather to there being "easy" gains to be made in many sectors relative to their depressed levels in the September quarter.

"Agriculture and food processing will have benefited from better growing conditions, compared with the autumn drought and the September snowstorms. We know that there was a sharp rebound in food exports in the December quarter, especially in meat and dairy, and we find it unlikely that this was achieved by running down inventories - that trick was already exhausted earlier in the year, to maintain the level of exports during the drought."

Forestry was also likely to make a sizeable contribution to growth, given the 11 per cent rise in export volumes recorded in the quarter, Westpac economist Michael Gordon said.

"We expect a pick-up in the volatile construction sector. On top of the 1.1 per cent rise in building work put in place - with a jump in non-residential buildings outweighing a further slump in housing construction - we have assumed some contribution from land clearing and repairs as part of the initial clean-up in the Canterbury region [after the September quake]."

In addition, retail spending in Canterbury was running ahead of the rest of the country in the December quarter, which might reflect the replacement of broken household items, he said.

Tuffley, however, believes retail volumes contracted heavily in the quarter as a lot of spending on consumer durables had been brought forward to the September quarter to escape the October 1 GST increase.

The GDP numbers are regarded as somewhat dated at the best of times, released as they are nearly three months after the end of the quarter concerned. The February 22 earthquake has added a further "that was then, this in now" quality to the figures.

The Reserve Bank has already factored a weaker-than-expected end to 2010 as well as the consequences of the earthquake into its March 10 decision to cut the official cash rate 50 basis points to 2.5 per cent.

Forecasters have generally shaved 1 to 1.5 per cent off their growth forecasts for this year as a result of the Christchurch quake and are now struggling to assess the impact of the triple calamity to have befallen Japan.

SHRINK OR GROW

GDP forecasts for December quarter:

* ASB: Down 0.1%

* Westpac: Up 0.4%

* Median estimate (based on 14 forecasters): Up 0.2%

- NZ Herald

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