NZ recession likely, Treasury says
New Zealand appears likely to become the first Western country to slip into recession this year, new figures show.
The New Zealand Treasury today said it believed the economy had contracted for the second successive quarter, satisfying the definition of a technical recession.
Official GDP figures for the June quarter will not be released until next month, but Treasury today released its overview of July economic indicators.
During the March quarter Gross Domestic Product shrank by 0.3%.
"Our view is that the economy contracted for the second consecutive quarter in June,'' Treasury said.
"Annual average growth in real production GDP in the calendar 2008 year is expected to slow to 0.5% to 0.75%,'' it said.
If the analysis is correct, New Zealand would become the first Western country to go into recession this year.
The last time New Zealand faced successive quarters of negative growth was more than 10 years ago, between September 1997 and March 1998.
Research economist with Westpac Bank, Dominick Stephens, said he was in no doubt his country was in recession.
Mr Stephens said drought conditions in the first half of this year hurt farm production, a major contributor to the economy.
It also reduced hydro-electricity generation, causing some manufacturers to curtail production, he said.
He said consumers were also tightening their belts, as the global credit crunch forced up interest rates, and higher petrol prices strained budgets.
"We think the consumer is out for the count for the foreseeable future,'' he said.
"Both in New Zealand and in Australia we have been spending more than we earn on the back of rising housing prices. This is obviously not a sustainable strategy. It was always going to come crashing down,'' he said.
Treasury also said inflation rose to 4% in the year to June, and was expected to peak around 5% in September, due to higher food and fuel prices, and higher non-tradeable inflation.
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