On Monday the ‘recession’ word was mentioned in a treasury report about the New Zealand economy, and yesterday the country’s most respected private economic forecasting and research group used the phrase "stagflation underway" to sum up the current outlook for the NZ economy.
Its all gloom and doom across the Tasman, for very good reason.
The updated outlook was issued by the NZ Institute of Economic Research in Wellington.It again makes sobering reading for those interested in the Australian companies invested in NZ.
Earnings from there are going to be hard to come by in the next year to 18 months.
"Results from NZIER’s Quarterly Survey of Business Opinion (QSBO) for the June 2008 quarter paint a picture of negative economic growth and strong, persistent inflationary pressures," the report started.
"Statistics New Zealand recently reported that real Gross Domestic Product (GDP) fell by 0.3% in the March 2008 quarter.
"Indicators of domestic trading activity from the latest QSBO suggest economic activity declined further in the June quarter and is likely to decline again in the September quarter which will make it three quarters of negative economic growth in a row.
"On a seasonally adjusted basis, a net 18% of firms reported a decline in their own activity and a net 18% expect their trading activity to fall in the next three months.
“These figures are at their most negative since June 1998 and December 1982, respectively.
"The movements in the trading activity indicators reflect the movements in real Gross Domestic Product (GDP) closely over time."
"While there has been a notable easing in the difficulty finding labour, other indicators of inflation (capacity utilisation, pricing and cost experiences and intentions) suggest that strong inflationary pressures will persist, which will increase the Reserve Bank’s discomfort in relation to pricing intentions and inflationary expectations.
"Although indicators of activity have dropped sharply in the latest survey, indicators of confidence about the general business situation improved slightly.
"They remain near low levels compared with historical experience, however.
"On a seasonally adjusted basis, a net 54% of firms expect the general business situation to deteriorate in the next six months.
"This compares with a net balance of 56% of firms which expected a deteriorating business situation in the March survey. The 56% figure was the highest expecting deterioration since December 2005."
A net 23% of firms expect domestic trading will decline over the next three months compared with 10% in the previous poll and a net 40% of the 923 businesses surveyed last month said profits will fall, the most since December 1982.
A net 64% of companies (the same as in the previous survey) believe the NZ economy will deteriorate in the next six months.
A net 71% expect their costs will go up and a net 49% of companies surveyed said they are likely to raise prices in the next three months, compared to 45% in the March survey.
The Institute says that’s the highest since March 1987 and suggests annual inflation may exceed 4%.
This, plus other surveys, falling exports, house prices and retail sales, and the contraction in the first quarter, suggest that the NZ economy may have slumped into a recession in the June quarter, despite hopes by some forecasters of a small expansion.
The Institute said: "Excluding seasonal adjustment, the business confidence statistic has improved for manufacturers and builders but deteriorated slightly for merchants and service firms. The depreciation of the currency over the quarter is likely to have contributed significantly to the improvement in manufacturers’ confidence.
"The slowing domestic consumer demand as households have had to deal with increased fuel costs, higher interest rates on mortgages and higher food prices, while paying increased taxation due to fiscal drag, is likely to have been a significant factor in the declines in merchants and service firms’ confidence indicators."
The NZ Treasury department Monday cut its forecast for economic growth in the year to March 31, 2009, to about 1% from 1.5%. That would be slowest annual growth since 1998.
"The past month has seen the release of data that confirm a sharp slowing of growth in early 2008 and point to further weakness in the June 2008 quarter," the June report said.
"It is possible that the economy has experienced a technical recession (where real GDP declines for two consecutive quarters) in the first half of 2008."
