English admits 'double dip' possibility

Finance Minister Bill English. Photo / Mark Mitchell

Finance Minister Bill English yesterday conceded that the country could have entered a "double-dip" recession.

December-quarter GDP figures to be released next month might show further economic contraction, he told MPs.

Because the September figures showed a small contraction - and two quarters in a row is a recession - economic commentators have speculated New Zealand may already have suffered a double-dip recession in the run-up to Christmas.

"It's possible, because you're talking about small numbers fluctuating around a very precise level - whether it's a technical recession or not," Mr English said. "Those kind of bumps along the way are all part of the process of very significant readjustment."

GDP fell 0.2 per cent in the September quarter, with the manufacturing, construction and mining industries all in reverse, even though GDP rose 1.4 per cent in the year to September 2010, compared with the year to September 2009, with primary industry activity up 1.1 per cent, including a 13.5 per cent rise in forestry and logging activity.

The first recession occurred when GDP fell for five consecutive quarters through 2008 and the first quarter of 2009. Although it then grew for five quarters, in two of them the economy had only 0.1 per cent growth - including the June 2010 quarter - and in another just 0.2 per cent growth was achieved.

Mr English told Parliament's finance select committee the economic recovery would "continue to have some challenges" and that the recovery had been "patchy".

The main growth in economic activity would be in the tradeables sector because of high commodity prices, but the benefits in terms of jobs would be limited because this sector did not employ as many workers as the non-tradeable and domestic sector.

He will deliver the Government's Budget on May 19, and said the Treasury was testing the impact that scenarios of different rates of growth would have on the fiscal situation.

The half-year update for the current financial year showed the Government was borrowing more than had been expected, because of some "one-offs" and the Christchurch earthquakes, "but from here, we are looking at a material surplus in 2015-16".

"The economy has been flat," Mr English said outside the select committee rooms. "People are saving hard and paying off debt quicker than we thought. They are not rushing back to the shops, and they are not rushing to the housing market. The big export prices haven't started feeding through yet."

Asked if the country had already been hit by a double-dip recession, he replied: "It's possible."

UPS AND DOWNS

THE RECESSION
There were five consecutive quarters of GDP contraction between 2008 and the first quarter of 2009.

THE RECOVERY
GDP grew for five quarters but only by 0.1 per cent in two quarters, and 0.2 per cent in another.

WILL THERE BE DOUBLE DIP?
GDP fell 0.2 per cent for September quarter. The Government awaits the December-quarter figures. If GDP falls again, it will technically be a recession.

- NZPA