Recession is finally ending

Fairfax

ENERGY UP: The Maari oilfield off Taranaki is now in production. Pictured is the Ensco 107 platform

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There is a "reasonable chance" the recession ended in the June quarter with a slight dip in the economy, according to some economists, while others pick a tiny recovery.

Official figures for gross domestic product in the June quarter are due on Wednesday, with most economists predicting another fall, in a recession that began at the start of last year.

But recovery is expected to take hold in the September quarter, which comes to an end next week.

Although a turning point was close, economists said consumer spending was likely to remain subdued, with investment weak, and exports struggling because of low prices, despite some lift in world demand.

The June quarter looked like being the "trough in activity", Westpac Bank economists said, with leading indicators such as business and consumer confidence suggesting growth in the September quarter.

But after 18 months of recession, the recovery was not a sign that official interest rate rises were "coming soon", Westpac said. The economy had fallen so far it would take a long time for any inflation to build up. The Reserve Bank said again this month it would not raise rates until late next year.

Construction and manufacturing have been hammered in the past 18 months and expected to still be lagging in the June quarter.

But huge interest rate cuts since last year, tax cuts, greater government spending, a lift in net migration and a rise in electricity and oil production are expected to lead to an improvement.

Business and consumer confidence was also rising, pointing to better times ahead, economists said.

The Reserve Bank prediction and the average market forecast are for the recession to continue with a 0.1 per cent decline in economic activity in the three months to the end of June.

Westpac Bank economists forecast a slightly worse outcome, with GDP down 0.2 per cent. On the other hand, ASB Bank forecasts GDP will be up 0.1 per cent in the June quarter, marking an earlier than expected end to the downturn. That suggested the Reserve Bank would begin to lift official interest rates by next June.

The economy was expected to remain "soft" but the overall slump was not as steep as expected, ASB said.

Energy should be positive, Westpac said, with New Zealand's biggest oilfield, Maari, beginning production in late February.

Maari is now in full production of almost 40,000 barrels a day, offsetting the fall in production from the Tui field, also off Taranaki.

Electricity generation declined last year, after a power transformer failed at the Tiwai Point aluminium plant.

DRAWN AND QUARTERED: The June quarter is likely to mark the end of an 18-month-long recession, although manufacturing and construction are expected to remain weak. Forecasts for June quarter gross domestic product: Reserve Bank: minus 0.1 per cent Average market forecast: minus 0.1 per cent Westpac Bank : minus 0.2 per cent ASB Bank: plus 0.1 per cent Statistics New Zealand figures due out on Wednesday.

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