Economic data out this week will give a clearer picture of whether the New Zealand economy will avoid a recession.
The balance of payments for the December 2007 quarter will be announced on Thursday and economic growth for the same period on Friday, indicating the shape of the economy heading into the unsettled start to 2008.
Westpac Bank chief economist Brendon O'Donovan predicts an improved current account deficit of 8% of gross domestic product for the period, compared with 8.3% for the previous quarter, and stronger-than-expected economic growth for the quarter of 0.9% and 3.5% for the year.
The Reserve Bank has forecast quarterly growth of 0.7%.
Mr O'Donovan attributes the improved current account to a 2.9% jump in terms of trade, led by dairy exports.
‘‘The still-high exchange rate will be dampening export volumes, but the agricultural volume cycle dominated in Q4, with goods export volumes up a hefty 10.7%.''
Import volumes also rose, but Mr O'Donovan forecasts the seasonally adjusted goods balance to improve from a quarterly deficit of -$791 million to -$140 million.
Westpac is picking a seasonal adjusted annual deficit of $3.1 billion, compared with $3.6 billion for the September quarter. High world spot dairy prices, combined with slower demand and consumption for imports, were expected to reduce the deficit further during the year.
‘‘The long-run sustainability of the current account improvement will depend on New Zealanders' saving behaviour. The expected stagnation in the housing market over the next four to five years should help redress savings imbalances,'' he said.
Westpac is more bullish than the Reserve Bank (RBNZ) with its 0.9% economic growth forecast for the December quarter, which would take annual growth to 3.5%, better than the 3.3% recorded a year earlier.
Mr O'Donovan revised his forecast from 0.6%, but warns that a strong end to 2007 could be at the expense of a weak start to 2008.
Growth last quarter was driven by investment by firms relieving capacity constraints, non-residential building plant and machinery investment activity in the dairy sector and primary-sector manufacturing.
Balancing that were weak performances by sheep and beef farming, fishing, forestry, some manufacturing and a housing sector Mr O'Donovan described as ‘‘in reverse gear,'' due to high interest rates and easing net migration.
‘‘As such, residential building is expected to be a drag on economic activity over the quarter.''
High fuel and food costs, along with rising debt, meant retail and wholesale trade would also contribute little.
The modest 0.5% growth in household spending and sharp housing correction would please the Reserve Bank but inflation was still a threat and he did not see any immediate prospect of a cut in interest rates.
