Economy 'safe' from double-dip recession

The economy is in no danger of falling into a W-shaped recovery, dropping back towards recession, according to a Business New Zealand report.

While growth is patchy and uncertain, care should be taken not to read too much into negative figures for one quarter, Business NZ's Planning Forecast for September says.

Reports from industry groups ranged from those doing "very well" to those who do not see much light at the end of the tunnel, even within the same industry, the report says.

Business NZ's economic conditions index, measuring a set of main economic indicators, was at 10 points for the September quarter, up 4 from three months ago, and up 1 point from a year ago.

The indicators suggested that growth was now "more robust", driven in large part by improved international commodity prices in the past year and stronger export volumes.

The average economic forecast by the main trading banks is for growth of 3.3 per cent in the year to September 2011, and 3 per cent in the following year.

Given the downturn in 2008 and 2009, growth of 3 per cent out of recession was "mediocre at best", Business NZ's report says. It would take another year just to get the economy back to where it was before the recession.

But on the positive side, world growth was expected to increase relatively strongly in the next few years – good news for countries, such as New Zealand, dependent on trade, , the report says.

Recently, headline unemployment figures have swung wildly, but underlying job figures have barely moved. Forward-looking indicators suggested "mild employment growth" and a slow reduction in unemployment.

While business confidence was also down, it is better than a year ago.

World commodity prices are down from their recent peaks, but are still significantly higher than a year ago, Business NZ says.

The ANZ commodity price index was up 47 per cent on a year ago and 30.8 per cent in New Zealand dollar terms, Business NZ says.

In world price terms, dairy and forestry product prices have risen the most in the past year.

Dairy commodity prices jumped nearly 17 per cent yesterday in Fonterra's online auction, with the average selling price for all contracts, across all product lines, rising to US$3562 (NZ$4992) a tonne. That reversed declines seen in the previous four months. The forecast farmer payout is $6.90-$7.10 a kilogram.

New Zealand accounts for about a third of world trade in dairy products and is also a big player in sheep meat, apples, beef and venison.

- © Fairfax NZ News