Economy falls faster than expected, second half growth expected

Economists continue to look for an end to economic decline in the second half of 2009, despite new figures showing a bigger than expected fall in the March quarter.

New Zealand's economy shrank for a fifth consecutive quarter in the three months to March and recorded its first annual decline in economic activity since 1992.

Figures published by Statistics New Zealand (SNZ) today show gross domestic product fell 1 per cent in the March quarter, following a revised fall of 1 per cent in the December quarter.

On an annual basis, GDP was down 1 per cent for the year ended March.

It is the first time since the series started in 1986 that GDP has declined for five straight quarters, while the 1 per cent declines of the December and March quarters were the largest for 18 years.

The median forecast among economists in a Reuters poll was for a decline of 0.7 per cent in the latest quarter.

ANZ said the economy was now in its longest recession since the mid-1970s.

"The June quarter likely contracted at a slower rate, and we expect the economy to come out of recession later this year," ANZ said.

Timing issues would complicate the picture, particularly with volatility associated with the inventory adjustment cycle.

After a build-up in inventories, the March quarter was the first time a substantial rundown was seen. Despite that, the level of inventories was still too high, ANZ said.

ASB economists Nick Tuffley and Jane Turner also expect further economic decline in the second quarter, led by weakness in construction.

Improvement in business confidence suggested activity would start to stabilise over the second half of 2009, they said.

In the March quarter, manufacturing production collapsed a "shocking" 7.2 per cent, following hefty declines in the previous two quarters.

Over the past year manufacturing production was down 13 per cent, returning to 2001 levels. "Although green shoots may be appearing in the housing market, they are conspicuously absent in other sectors."

Goldman Sachs JBWere analyst Bernard Doyle said he expected one more quarter of decline, in the three months to June, with modest sequential growth returning to the economy in the second half.

"The decline in GDP in the March quarter in New Zealand will not stand out amongst advanced economy peers. All economies were struggling over the first three months of the year," Mr Doyle said.

But this country did stand out in having had five quarterly contractions in output.

There were questions about how powerful a recovery would be, with the downside presented by swine flu arguing against excessive optimism, Mr Doyle said.

"Furthermore we continue to see structural headwinds to domestic-led growth - the household sector is carrying too much debt."

- NZPA

RECESSION SO FAR
New Zealand's GDP:

* March quarter 2008-0.3 per cent
* June quarter 2008-0.2 per cent
* September quarter 2008-0.5 per cent
* December quarter 2008-0.9 per cent
* March quarter 2009 -1.0 per cent