Economy not yet out of the woods, says Dun & Bradstreet

The New Zealand economy is better placed than many but is still at the mercy of an uncertain global economic recovery, according to credit reporting agency Dun & Bradstreet (D&B).

Its quarterly Global Economic & Risk Outlook Report, released today, said a sustained improvement in the global economic outlook was not yet a certainty.

However, the local outlook was more promising, particularly on the back of June quarter GDP figures showing the economy grew by 0.1 per cent, the first expansion in six quarters.

Governments' fiscal stimulus measures and a rebuilding of inventories were two factors supporting economic activity but these were not enough to ensure a sustained improvement in the global economic outlook, D&B said.

It predicted global GDP would contract by 2.8 per cent in 2009 before returning to growth of 1.3 per cent in 2010.

In New Zealand the economy was growing, interest rates and lower taxes had boosted disposable incomes directly, and consumer sentiment was also aided by improving news from the housing market.

However, exporters would face pressures from overseas protectionist measures, as well as a significant reduction in the volume of trade.

However, countries such as New Zealand, which have lower barriers to trade, would be better placed to take advantage an upsurge in trade volumes, predicted to be low, as the global economy recovers.

A sustained improvement in the global economic outlook was not yet a certainty, said John Scott, D&B New Zealand's general manager.

Economic activity was still heavily reliant on fiscal stimulus measures and rebuilding inventories, but these alone were not enough to right the world economy, he said.

High unemployment, tight credit and rapidly rising borrowing by governments were negatively impacting the short-term outlook and threatening to crowd out private investment.

"While the economy remains heavily dependent on stimulus measures to generate activity and while negative indicators such as high levels of unemployment are still prominent, it is too early to suggest that the global economy is firmly on the path to recovery."

The outlook for some of New Zealand's key trading partners is mixed with some faring better than others, D&B said.

Australia was well placed to ride out the crisis, given aggressive policy action and continued government spending planned for the short-term.

China's outlook was also promising, however exporters could face delayed payments from China as payment performance by Chinese importers continued to worsen in the second quarter.

In the United States, despite further signs indicating the downturn was easing and that a return to growth was possible in the back-half of 2009, concerns remained that any rebound in economic growth could be short-lived as weak credit and high unemployment taint the prospects for domestic demand.

United Kingdom activity was expected to remain weak over the winter months.

This follows a 0.8 per cent contraction in GDP in the second quarter of 2009, a worse result than anticipated and the fifth consecutive contraction.

"Signs of promise are becoming increasingly clear for New Zealand," Mr Scott said.

"Our nation appears to be on the road to recovery and with improvement also apparent for some of our key trading partners, the signs bode well for our exporters.

"However, returning to sustained and significant growth presents its own set of challenges. To successfully manage the new tests that we face, New Zealand firms must maintain an unwavering focus on the fundamentals of risk and cash flow management."

- NZPA