Recession forecast premature: Berl

Independent forecaster Berl said yesterday other economists were premature in forecasting recession.

It said many financial organisations and institutions had consistently, but unsuccessfully, forecast economic downturn at some time during the past four years.

‘‘We now see an inglorious rush to be the first to confirm that the New Zealand economy is now in recession. We are not part of that rush,'' Berl economist Ganesh Nana said.

‘‘Talk of a downturn, or even a recession, is both uninformative and grandstanding,'' he said.

It was still possible New Zealand could have two quarters of negative growth - the classic technical definition of recession, he added.

Last week, BNZ economists forecast there was a better than 50:50 chance of recession and said there was a good chance the economy was already in one.

Dr Nana said while prices for commodities have been surging, New Zealand's terms of trade had similarly surged as the effect of world demand for food and other commodities rapidly outweighed the impact of oil prices.

Dairy prices and New Zealand oil exports were under pinning the economy.

But Dr Nana said business investment, which had surged 4.7% in the September year, was the main driver of economic activity.

Indeed, business investment had expanded a total of 30% during the past four years while the economy had only expanded by just 13% during the same period.

Business investment spending was set to ease towards 2% in the coming year and private consumption spending was also set to decline towards 1.6%.

This would takes GDP growth to an annual aver age 2.0% in the coming year to March 2009.

Despite the meltdown in world credit markets, Berl does not expect any interest rate easing by the Reserve Bank until early next year, and then it will be slight.

‘‘We expect business invest ment growth to head back towards the 3% mark by the end of the forecast horizon".

Dr Nana said consumer spending will be bolstered by income tax cuts and that will see economic growth nudge back to the 2.5% mark by 2010 That is more optimistic than the Reserve Bank or BNZ's forecasts.

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