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Wed, Jul 07, 2010 - Page 10 News List

New Zealand recovery weakening

DIFFERING VIEWS While the New Zealand Institute of Economic Research says the survey indicates a ‘fragile’ outlook, other analysts say it indicates a mild recovery


New Zealand’s export-led recovery may be stalling, according to a business confidence survey released yesterday.

The New Zealand Institute of Economic Research’s (NZIER) quarterly survey of business opinion found renewed weakness in manufacturing, construction and investment intentions in the last quarter.

Small firms, which usually lead the economic cycle, experienced weaker conditions in the three months to last month, the survey found.

“Firms are less optimistic as the economy has yet again failed to deliver on expectations of a strong recovery,” said the NZIER’s principal economist, Shamubeel Eaqub.

“Seasonally adjusted business confidence eased from 36 percent to 28 percent. The recovery may be stalling. The outlook is still fragile,” he said.

The percentage is obtained by subtracting the percentage of respondents expecting business conditions to decline from those expecting an improvement.

Eaqub said the economy would normally be expected to be recovering strongly at this stage of the cycle.

The slowing momentum of global growth and financial market disruption also added risks to the outlook, the survey found.

The NZIER’s warning came a day after the Treasury said belt-tightening around the world and possible government defaults on sovereign debt posed risks for the economy. Other economists interpreted the survey more optimistically, saying the results painted a picture of a mild economic recovery.

“The current level of firms’ own assessment of trading conditions suggests economic growth over 2010 will still be reasonably healthy,” ASB bank chief economist Nick Tuffley said.

ANZ bank economists said the results were still consistent with economic growth of three percent this year.

“We would characterize today’s results as the reality of a slower recovery dawning on businesses, as opposed to the recovery itself coming under threat,” they said.

However, Eaqub said the central bank would need to take care not to stifle already weak domestic demand and derail a fragile export recovery.

The Reserve Bank of New Zealand raised the official interest rate last month for the first time in nearly three years from a record low of 2.5 percent as the economy entered its second year of recovery.

In Sydney, the Reserve Bank of Australia held interest rates at 4.50 percent for the second consecutive month yesterday, citing concerns about growth in Europe and China that could affect the global recovery.

The bank, which has raised rates six times since October, opted for a cautious approach as financial markets fluctuate and global economies expand at uneven rates.

“Pending further information about international and local conditions for demand and prices, the board views this setting of monetary policy as appropriate,” Reserve Bank governor Glenn Stevens said.

Asia and Latin America were experiencing very strong growth, while the major advanced nations were recording “only modest growth overall,” Stevens said.

Growth in China, Australia’s top trading partner, appeared to be moderating to a “more sustainable rate,” but prospects in debt-plagued Europe were uncertain and the US was flagging after a stronger first half.

“Caution in financial markets has been evident in the past couple of months, driven principally by concerns about European sovereigns and banks, but also by some uncertainty about the pace of future global growth,” Stevens said. “Some tightness in funding markets is evident, though not on the scale seen in late 2008.”

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