KEY POINTS:
New Zealand's Gross Domestic Product is likely to have fallen 0.3 per cent in the March quarter and was probably up only 2.1 per cent from a year ago, economists are saying ahead of the release of the figures next Friday.
A slump in retail sales, a weak housing sector, the drought's impact on farm output and a slowing manufacturing sector are all factors driving the economy into recession or near recession, they say.
The key focus is on whether GDP will also fall in the June quarter, satisfying the technical definition of a recession, which is two consecutive quarters of negative GDP growth.
If we do see a recession, this will make it easier for the Reserve Bank to argue it can cut the Official Cash Rate (OCR) from its current 8.25 per cent later this year, although the jury is out on how much it will cut and how quickly. Most are forecasting a 25 basis point cut in September with another one in December.
Westpac Chief Economist Brendan O'Donovan is picking a 0.3 per cent fall in GDP the first quarter and a 0.5 per cent fall in the second quarter.
Here are the key passages from his preview of the March quarter GDP figures.
An economic contraction would surprise few, given the dire responses to both business and consumer confidence surveys at the time. Economic weakness is expected to be broad based as the well documented negative influences operating on the economy start showing up in the national accounts.
If growth in the first quarter does print negative, economic recession in the first half of 2008 would be highly likely with early indicators suggesting the second quarter has been worse than the first.
ASB Chief Economist Nick Tuffley also sees in his preview a 0.3 per cent contraction in March quarter GDP. Here are a few key passages from his report.
Q1 took a few knocks in the form of drought, increased pressure on household finances and even the early falling of Easter. Those factors make for a lot of volatility, so looking at the first half of the year overall will ultimately provide a better guide.
BNZ Head of Research Stephen Toplis is forecasting in his preview a 0.2 per cent fall in March quarter GDP and that Q2 is looking just as weak.
Here are a few key passages from his report:
"We're not so sure folk are taking enough of a downbeat view on June quarter activity. Even in respect of the June MPS, the RBNZ picked a 0.2 per cent bounce-back. We, in contrast, are becoming more and more inclined towards a negative result.
"We got this impression quite clearly, for example, from last week's retail sales statistics. These, along with such things as the terrible anecdote and sales reports from retailers over recent weeks, and extremely weak consumer sentiment, suggests real spending is falling more noticeably that it did in the March quarter."
- INTEREST.CO.NZ
