Jul 7, 2008

Another Gloomy Economic Forecast

This time from Infometrics. The following quotes come from Stuff

The economy is in recession after five boom years, and the next five years are not looking positive, says independent economics group Infometrics.
Quarterly economy growth is expected to be "negative or close to zero" during the first three quarters of the year, Infometrics says.
The slump in economic indicators has come as household budgets have been squeezed by the rising cost of living and falling consumer confidence, with household spending expected to grow just 0.4 per cent in the year to March 2009.
In its latest long-term forecast, Infometrics says the recession has been brought on by high food and petrol prices, high interest rates and a slumping housing market.
The economy is set to grow only 0.5 per cent in the year to March 2009 after years of 2 per cent to 3 per cent growth.
A recovery is expected in the next year, but growth will be hampered by lacklustre export growth and the economy is expected to expand an average of just 2.3 per cent in the next five years. Interest rates were set to be cut later this year, but high inflation in the coming period means interest rates would return to the "tight side of neutral".
Consumer confidence would get a boost from tax cuts later this year, but the detrimental impact of government policy tinkering in the past nine years would be apparent by 2013.
"We anticipate the potential growth rate will have slipped as much as half a percentage point over the decade to 2013," Infometrics says, from 2.75 per cent to 2.25 per cent.
The unemployment rate is expected to rise to 4.7 per cent in the next year, but not more, despite the present recession and growth of just 0.5 per cent for the March 2009, Infometrics says.

BNZ agrees

Bank of New Zealand economists agree that "New Zealand is in the midst of recession" though the official figures for the June quarter are still months away.
The economy contracted 0.3% in the March quarter and two quarters of negative growth is classed as recession.
BNZ hoped New Zealand could avoid a deep or long-lasting recession because our safety net was better than most countries. New Zealand had a comparative advantage as a food producer and that would serve us well in the long term.
As well, interest rates were high and so could be cut a long way, and the Government could run temporary fiscal deficits after running large surpluses for years.
The New Zealand central bank's cash rate is 8.25 per cent, while the rate in the United States is just 2%.
Households on low to middle or fixed incomes were finding the going "very tough", BNZ said. Spending power was being savagely eroded by rising prices especially for the basics.
Business confidence is down too, with the BNZ's latest survey showing a net 43.9 per cent of firms expecting the economy to worsen. The pessimism reflects higher petrol prices and weaker retail sales.