KEY POINTS:
The recession deepened in the three months to September, as demand evaporated in every major sector of the economy except the Government, and economists predict worse to come.
Gross domestic product fell 0.4 per cent in the quarter, the third contraction in a row, Statistics New Zealand said. The last time the economy shrank for three consecutive quarters was during the Asian crisis 10 years ago.
So far this recession has been milder, with economic activity falling a cumulative 0.9 per cent, compared with 1.8 per cent in 1997/98. After the last recession ended it took nine more months for economic activity to return to pre-recession levels.
But this time the international slump is much more severe - comparable, the International Monetary Fund reckons, to those of the mid-1970s and early 1980s. The IMF does not expect recovery to begin among the advanced economies until late next year.
"At best New Zealand may be only halfway through its downturn," ASB economist Jane Turner said. "We expect the economy to remain in recession through to mid-2009, and there is a growing likelihood of a more prolonged downturn."
Goldman Sachs JBWere economist Shamubeel Eaqub expects the recession to deepen next year. The next six to nine months would see job losses compounding the domestic recession while a slowing global economy weighed on the export sector, he said.
Bank of New Zealand economist Craig Ebert said almost all the contraction recorded in the September quarter numbers occurred before the credit crisis really began to strangle the global economy.
"With exports accounting for a third of GDP this is a real worry."
The BNZ estimates the economy contracted 0.6 per cent in the December quarter and that the coming March quarter will be negative as well.
Deutsche Bank chief economist Darren Gibbs also believes the recession is only halfway through.
The economy would contract further over the first half of next year, he said, as businesses scaled back investment, household spending remained subdued and exporters struggled with a global recession.
The 0.4 per cent fall in September was in line with market expectations and followed falls of 0.3 per cent in March and 0.2 per cent in June.
It pulled the annual average growth rate down to 1.7 per cent, its weakest since June 1997.
Agricultural output rebounded 6 per cent in the quarter, seasonally adjusted, as production returned to pre-drought levels, but manufacturing and construction activity both fell, by 2.5 and 1.2 per cent respectively.
The services sector, which represents about two-thirds of economic activity, shrank 0.2 per cent, the second quarter in a row it has declined.
On the demand side of the national accounts the weakness was across the board, with only the Government's consumption of goods and services growing.
Household consumption fell 0.2 per cent, the third consecutive quarterly decline. That has never been seen before since comparable statistics began in 1987. Investment spending also fell, and sharply. Residential construction was down 7.7 per cent and spending on plant and machinery down 15.6 per cent. About half of the fall in plant and machinery investment reflected the fact that the the June quarter figures had been boosted by costly oil-related plant.
In all, domestic demand was down 1.7 per cent, the steepest quarterly fall for 11 years.
Net exports were positive, but only because a 3.1 per cent fall in export volumes was outstripped by a 7.6 per cent drop in imports.
Financial markets expect the Reserve Bank to cut the official cash rate from 5 per cent now to 4.5 per cent, if not 4.25 per cent, when it next reviews rates on January 29.
