New Zealand's economy is likely to remain in recession until
at least September as businesses start to report a decline in
their trading activity.
A technical recession is two quarters - six months - of
negative economic growth as measured by gross domestic
product (GDP).
The NZIER quarterly survey of business opinion for the June
quarter painted a picture of negative economic growth and
strong, persistent inflationary pressures.
On Monday, Treasury also warned that New Zealand had probably
experienced a technical recession in the first half of the
year.
Bank of New Zealand research economist Stephen Toplis said
the NZIER survey gave the Reserve Bank the green light to
start cutting interest rates.
"Whether if feels comfortable doing so at the July 24
official cash rate review remains a moot point but September,
and probably another before the end of the year, looks a done
deal."
There was no doubt the health of the economy was worse than
the Reserve Bank expected when it put together its June
monetary policy statement, he said.
The really interesting information came in what the survey
indicated for the third quarter.
The BNZ and the Reserve Bank were both picking a flat quarter
but the survey indicated that a large negative number was
conceivable, Mr Toplis said.
The own-activity indicator of the NZIER survey had proved
"remarkably accurate" in the past and, given the negative
momentum building up in both the household and business
sector, a negative third quarter was plausible.
If the Reserve Bank took the survey at face value, then it
could easily conclude that it needed to start easing sooner
rather than later.
"Then again, it wasn't so long ago that Reserve Bank governor
[Alan] Bollard rubbished the view that the economy might head
into recession," Mr Toplis said.
NZIER chief executive Brent Layton said that on a seasonally
adjusted basis, a net 18% of firms reported a decline in
their own activity and a net 18% expected their trading
activity to fall in the next three months.
Last quarter, the figures were 7% and 8%.
The latest figures were at their most negative since June
1998 and December 1982 respectively.
The movements in the trading activity indicators closely
reflected the movements in real GDP over time.
The net balance of firms intending to increase selling prices
in the next three months had increased.
The balance was 45% in March and 49% in June, the highest
since March 1987.
The number of businesses expecting an increase in costs had
increased to 71% in June from 62% in March with the latest
figure the highest since December 1986.
Not unexpectedly, the NZIER survey showed 6% of firms
surveyed intended to cut staff numbers during the next three
months, compared to the 3% who did decrease staff in the past
three months and a net 0% of firms that planned to decrease
staff in the last survey.
Dr Layton said there had been a notable easing in the
difficulty of finding skilled and unskilled labour.
A balance of 19% of firms reported in the June survey it had
become harder to find skilled labour, the lowest number since
June 1999.
In March, the figure was 36%.
The balance of firms reporting it had become harder to find
unskilled labour went from 33% in December 2007 to 22% in
March and 6% in June.
A Hays recruitment survey, also released yesterday, showed
the number of New Zealanders concerned about their job
security due to the economy outlook was only just outnumbered
by those who remained unconcerned.
For months there had been commentary about the US sub-prime
consequences.
There had been talk of organisations monitoring effects
globally but with few local affects seen so far, Hays New
Zealand managing director Jason Walker said.
"Closer to home, manufacturers are sending production
offshore and petrol price and interest rate pressures have
been widely debated.
"This can't help but make some people feel concerned about
job security."
