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Double dip recession still on horizon

Published: 5:49AM Tuesday November 30, 2010 Source: NZI Business

  • Coins (Source: Thinkstock)
    Coins - Source: Thinkstock

A leading economic thinktank has again raised the question of a double dip recession for New Zealand.

The New Zealand Institute of Economic Research's latest quarterly report, published today, forecasts "wintry" economic conditions as the country heads into summer but spending remains muted.

"The economic recovery has reversed ... Critical indicators like house sales and QSBO (Quarterly Survey of Business Opinion) domestic trading activity point to a slow finish to the year, even without the destruction and disruption of the Canterbury earthquake," the report said.

NZIER, which has remained persistently downbeat in its forecasting this year, said a double dip recession cannot be ruled out, but "is not our central scenario".

It is suggesting the Reserve Bank needs to keep the Official Cash Rate (OCR) on hold for longer than the March point previously suggested by many economists.

"We expect economic growth to recover from 1.7% in 2010 to 2.3% and 2.9% in 2011 and 2012 ... The recovery will be shallow and volatile. The Canterbury earthquake will weigh on growth in late 2010, but boost GDP growth next year," it said.

The OCR will be reviewed next Thursday December 9 and then again in March and June next year.

BNZ economists yesterday also noted a "growing risk that the next OCR hike may well be later than currently anticipated".

The NZIER also pointed to increasing risks in the global outlook with quantitative easing, fiscal austerity and bailouts all becoming regular features in the economic landscape.

It feels the NZ dollar will remain high for some time and says policy options for intervening may do more harm than good.

In the most positive note on the quarterly report, the NZIER said that after a weak period, it does expect "a more sustained recovery from mid 2011".

"Businesses should plan for a shallow economic recovery. Economic activity will be weak through late 2010 and early 2011, but we expect a more sustainable and broad based recovery from mid 2011."

The NZIER is a non-profit incorporated society.

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