Shrinking economy forecast for quarter

Although November retail sales were higher than forecast, the economy probably shrank during the December quarter, economists said yesterday.

That may still not persuade Reserve Bank Governor Alan Bollard to cut interest rates on Thursday, although he is not expected to lift rates again.

Statistics NZ said yesterday that seasonally adjusted sales rose 0.9 per cent against expectations of 0.3 per cent. However, excluding car sales gives a truer picture of the economy - sales fell 0.1 per cent in the month.

ANZ economists said that even the rebound in car sales after September and October looked shortlived, with registrations down again in December.

"Even if we get a solid retail sales figure for December, quarterly retail sales growth will be soft ... increasing the chances of a negative December quarter GDP result."

It reinforces NZIER's Quarterly Survey of Business Opinion that flagged a negative quarter and possibly a recession if the March quarter is poor.

ANZ said that despite the economy going into reverse, Bollard was unlikely to cut rates until headline inflation was back inside the 1 to 3 per cent target.

Over the year, total actual retail sales rose 5.6 per cent, slightly above the 5.3 per cent forecast.

Yesterday's figures showed most retail industries recorded relatively small dollar movements for the second consecutive month. Excluding vehicle retailing, no industries showed seasonally adjusted movements exceeding $10 million in November.

- NZPA