Construction, publishing tipped to lead recovery

Construction and related industries, along with publishing and advertising are among sectors Westpac economists expect to see recover most strongly from recession.

In a note, Westpac chief economist Brendan O'Donovan and research economist Dominick Stephens looked at which sectors had been hardest hit in the recession, and estimated which were most pro-cyclical _ those which move in the same direction but much more than changes in the rest of the economy.

``With New Zealand in only the early stages of an economic recovery, the most pro-cyclical sectors are likely to be amongst the best performers over the next couple of years,'' the note said.

The industries related to construction that are expected to grow strongly include non-metallic minerals, wood and furniture, while other sectors considered likely to outperform included those supporting plant and machinery investment.

The economists also added transport to the list, pointing out the downturn in the transport and storage industry, with a peak to trough decline of 12 percent, had been far greater than in a standard recession.

Durables consumption, such as cars, whiteware and other big ticket items, was another category expected to do better than most.

``Most of the downturn in consumption in the recession was in the durable goods category. Improvement in the housing market and household incomes will see the durables consumption category rebound by more than non-durables and service,'' the note said.

For many export intensive sectors it was harder to generalise, depending on who was being exported to.

The global economy was staging a convincing recovery after its first year of contraction since 1946, but the good news was not distributed evenly.

China was the global growth powerhouse, pulling southeast Asia, Australia and the resource economies with it, while recovery in the United States looked anaemic by comparison, Japan remained mired in deflation, and Europe was the worst laggard of all, the note said.

The New Zealand exchange rate would be all right for manufacturers exporting to Australia, but third country competitiveness, such as developing Asia, would still be stifling for low-end manufactures.

``However, commodity exporters will tend to get good end-market prices because of recovering global demand while supply is generally skinny,'' the note said.
   ``With a much improved domestic economic outlook, and prospects for reasonably strong global growth, we think the sectoral economic outlook (in terms of growth) is at its best for many a year.''

- NZPA