Recession 'done and dusted' – economists

Photo / Martin Sykes

Economists say the recession is "done and dusted", noting jumping dairy prices, an improving employment market and continued expansion in the services sector.

The BNZ Capital/Business NZ monthly performance of services index (PSI) for August reached 51.3, up 1.2 points from July and 3.4 points from August last year.

A score above 50 points indicated the services sector was expanding; a score of less than 50 indicated it was shrinking.

Business NZ chief executive Phil O'Reilly said the positive results indicated the historic lows of 43.7 in April were well and truly over.

"The New Zealand result is mirroring offshore developments, with the JP Morgan global PSI for August (50.5) showing expansion for the first time since May 2008.

"Part of this global recovery has come from a significant improvement in new orders and activity/sales," he said.

The New Orders/business figure, regarded as a key indicator, built on strong gains from last month, reaching 57.6 - the highest index score since February 2008, BNZ Capital analyst Stephen Toplis said.

"Even the laggard labour market is starting to show signs of life," he said.

Employment stood at 49.3 - its highest since November 2008.

Deliveries were at 47.9, though were slowly climbing back from their historic low in June, while Activities/Sales fell 1.2 per cent from the previous month to 50.5.

Early last month saw the first serious recorded jump in dairy commodity prices after a series of "heartbreaking falls", Mr Toplis said.

Rural information provider Agri-fax reported an increase in the weighted average dairy price of 11.9 per cent for August from the month prior, and Fonterra's auction prices rising more than double that. This had stoked much optimism in the regions, Mr Toplis said.

"Of course, this is not to say dairy farmers are out of the woods. Those who are highly leveraged still face severe cash flow constraints," he said.

However, the BNZ's economists were optimistic the worst of the financial crisis was over.

"The recession is done and dusted, activity levels have now stabilised, and a genuine pick up is set in place for calendar 2010."

However, a slight caveat was implied: "The data come with a health warning that hard evidence of a recovery is now going to be needed to keep confidence headed in the right direction."

- NZPA