KEY POINTS:
The Government's announcement that it is accelerating nearly $500 million of publicly funded building projects is a positive and encouraging step, says Goldman Sachs JBWere economist Shamubeel Eaqub.
Along with the $480m small business tax package announced last week it was a necessary step in the right direction
to support the economy, said Eaqub.
"While small in the context of annual GDP ($180 billion) these are positive and encouraging steps to counter the recession and bolster the aggressive easing delivered by the RBNZ to date."
But more needed to be done and the Government had announced further measures would be delivered in the May budget, while the Reserve Bank was expected to continue its aggressive interest rate cuts.
Two groups predictably happy with the Government's infrastructure spend-up are the Contractors' Federation and the Construction Industry Council, both of which have issued press releases praising the move.
Construction Industry Council chief executive Richard Michael, said the "well thought out" packages for roads, schools, state housing and public projects would stimulate the economy and provide social benefits.
"Extensive thought has clearly gone into spreading this investment widely across the country and this will provide work for contractors of all sizes across the construction industry," said Michael.
He said it would also help New Zealand retain skilled workers. "The wide variety of work planned also provides an excellent opportunity for our experienced workers to pass on their skills to trainees, on site," he said.
"New Zealand's construction industry is ready and able to take on this and future work and we are very pleased that a large proportion of the projects are being fast tracked and will start before June 30 this year."
The Contractors' Federation congratulated the Government on its "timely and positive package" of infrastructure initiatives to stimulate the economy."
"The money is going into the areas where they will get good bang for their buck both in terms of economic return and retaining skilled workers," said Michael - who is also chief executive of the federation.
"The fact that the projects are ready to start immediately is very positive and will further add to the benefits," he said.
Shamubeel Eaqub, Goldman Sachs JBWere's Australia and New Zealand investment research director, also warned that the spectre of a ratings downgrade may hamstring efforts to reflate the economy.
The possibility of a downgrade had been raised by the prospect of rising public sector debt at a time private sector debt was at historical highs.
"The recession is taking a toll on tax revenues and increasing expenditures as automatic stabilisers kick in will likely drag on the fiscal position," he said.
The Reserve Bank's aggressive interest rate easing with more to come, further fiscal stimulus in the May budget, and hopefully soon a normalisation of global credit conditions should slowly lay the foundation for a recovery into 2010.
"The economic outlook remains uncertain but it is encouraging to see active efforts by the Government to support the economy," said Eaqub.
- NZPA
