FYI | Jan 12 2009
By Chris Shaw
Last year was a tough one for the New Zealand economy and according to Commonwealth Bank New Zealand economist Chris Tennent-Brown, 2009 won’t be any easier. Indicators at present point to downside risks for growth given the currently challenging global economic backdrop.
In Tennent-Brown’s view, the weakness in the New Zealand housing market is likely to continue as prices have not yet bottomed. A substantial amount of unsold stock also implies a buyers market for some months to come. As well, Macquarie expects businesses will respond to the tougher conditions by cutting spending, while lower activity levels means unemployment is likely to increase to around 6.0%.
Tennent-Brown also cautions the country’s export outlook is growing increasingly fragile given concerns over the global economy generally and the Chinese economy in particular. Both will also impact on business confidence levels.
There are some pockets of brighter news, with Tennent-Brown suggesting consumption may recover to some extent given inflation is now less of a concern than was the case six months ago. The change means the Reserve Bank of New Zealand (RBNZ) has scope to continue lowering interest rates in coming months, which will help ease the burden on household budgets.
Macquarie also expects some fiscal stimulus from the Government via increased spending and if either the housing market or consumption are the major targets of such policy, the broker suggests there would be improved prospects of a turnaround later in the year.
Such a time frame fits in with Commonwealth Bank’s assessment, as Tennent-Brown expects the economy will shrink further in the first half of the year before possibly stabilising in the second half of 2009.
