Recession rumbles on


The economy has suffered its first annual decline in Gross Domestic Product in 17 years. Statistics New Zealand said today GDP for the year to March shrank 1 percent.

That was the first annual decline in economic activity since mid-1992. This came as the recession continued for a fifth straight quarter during the March quarter, with the economy also shrinking 1 percent in the quarter, as manufacturing and household spending was hammered.

Economists’ forecasts ranged from a drop of 0.5 percent to 1 percent for the March quarter. ASB economist Jane Turner said today’s data indicated that the underlying momentum in the economy was weaker than previously thought. “The risks to the growth and inflation outlook definitely remain skewed to the downside,” Turner said.

“Green shoots may be appearing in the housing market, [but] they are conspicuously absent in other sectors.” Statistics New Zealand figures also show manufacturing activity down a massive 7.2 percent in the March quarter. Household spending fell 1.4 percent in the three months, the biggest slump in spending since the 1991 recession. The fall was seen mainly in sales of cars, furniture, and big appliances. Business investment in plant and machinery was also down heavily in the quarter, falling 6.1 percent.

The biggest annual impact on GDP came from the construction sector, down almost 9 percent for the year, while manufacturing fell more than 5 percent in the year to March 2009, compared with the year to March 2008. TD Securities senior strategist Annette Beacher said she expected rising unemployment and a steep fall in farmers incomes to “smash” what green shoots there were in the economy and “inflame” the New Zealand dollar.

Beacher said there was ample scope for the Reserve Bank to lower the Official Cash Rate to 2 percent from 2.5 percent in an attempt to shore up growth. The recession began at the start of last year, and is expected to continue for its six quarter into the June quarter just ending.

But the downturn may run for the rest of the year, according to economists. Six quarters of recession would be the longest downturn since the early 1990s. Only the mid-1970s crunch was longer in the post-World War II period.

An economic recovery is not expected till late this year or into next as the benefits of lower mortgage rates, April’s tax cut and greater government spending take effect. But the recovery is expected to be fragile. Consumers are shying away from big purchases, cutting their debt and saving more.

However, figures earlier this week showed net migration rising, as far fewer people left New Zealand. The net gain from migration was 11,200 over the last 12 months according to Statistics NZ figures out on Monday, the highest annual inflow since 2007. That was more than double the net annual gain just six months ago.

That is expected to give the housing market and retail sales some support, despite rising unemployment. Meanwhile, the US economy tumbled at a 5.5 percent annualised pace in the first quarter, but appears to be doing better than it was.

The revised reading on gross domestic product, showed the economy from January through March didn’t fall as deeply as the 5.7 percent annualized decline reported a month ago. In the final quarter of last year, the US economy plunged at a 6.3 percent annualized pace, the most in a quarter-century.