NZIER says economy slows but risk of recession in 2020 low

Independent economic consultancy NZIER said the risks of New Zealand falling into recession next year are low.

NZIER said if the economy did make a turn for the worse next year, policy makers could reduce the severity of the slowdown through monetary and fiscal policy.

Christina Leung, NZIER's principal economist, said the economic indicators were mixed.

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"New Zealand's economy is slowing, and indicators are mixed as to whether a recession is on the way over the coming year, but on balance we see little cause for concern that a recession will strike New Zealand in 2020," Leung said in a commentary.

She said the global economic environment was difficult to predict.

On the domestic economy, she said: "We looked at a number of current indicators – timing, business confidence and activity, unemployment and the yield curve, and found that on balance New Zealand's economy should continue to grow throughout 2020."

New Zealand had "levers" to combat recession.

"If the global situation changes, monetary and fiscal policy can be used to reduce the risk of recession here, or to reduce the impact of a recession once it has happened," she said.
"Timing is everything when it comes to using these levers," she said.

In August the Reserve Bank, recognising the risk of a slowdown, cut its official cash rate by 50 basis points to 1.0 per cent.

This week, the Government announced $12 billion in extra infrastructure investment.

Leung said policy changes always take time to show an effect, so it was important to respond with the appropriate policies at the right time.

In New Zealand, the economy has been growing since 2010 – marking eight and a half years of growth.

"The 34 consecutive quarters of growth is the longest stretch of economic growth in the period since 1947, when records for quarterly GDP estimates began," she said.

"Like the world economy overall, the New Zealand economy is slowing, and indicators are mixed as to whether a recession is on the way over the coming year.

Given the nature of business cycles, economic slowdowns were generally a matter of "when" rather than "if".

"Policymakers can reduce the severity of such slowdowns through monetary and fiscal policies to ensure the economy has a solid enough foundation to recover," she said.

"Given policy changes tend to take effect with a lag, these recession indicators provide useful guidance to ensure policy responses are timely and can potentially minimise the effect of any global recession.

"Taking the findings from the range of recession indicators overall suggests the New Zealand economy is unlikely to head into recession over the coming year," Leung said.

"But activity is clearly slowing."

ANZ Bank expects third quarter GDP data, due next week, would show growth of 0,5 per cent, quarter on quarter, with growth in services once again leading the charge.