August 21 2017, updated 2:16am

Recession expectations build

Last updated 11:02 27/06/2008

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Today's report from The Warehouse of a marked downturn in sales from late May has added to widespread expectations that New Zealand is heading for recession.

With a recession defined as two quarters in a row of economic decline, data out today showing the economy shrank 0.3 per cent in the first quarter of 2008 looks set to make up the first leg of a recessionary double.

Releasing the gross domestic product figures today, Statistics New Zealand (SNZ) said the agriculture and construction industries had been the main contributors to the decline in the first three months of the year.

And despite the quarterly contraction, for the year GDP was still up a reasonable 3 per cent, having grown a revised 0.8 per cent in the December quarter.

Primary industries recorded their largest quarterly decline in a decade, down 4.1 per cent in the March quarter. A 5.6 per cent fall in agriculture was the main contributor to the decrease, SNZ said.

A 5.2 per cent fall in construction and 1.2 per cent fall in manufacturing drove a 1.9 per cent fall in goods producing industries – the largest fall for that group since June 2000.

Household consumption spending fell 0.4 per cent, the first decrease since the June 2004 quarter, SNZ said.

Many economists have predicted further contraction in the June quarter, and Bank of New Zealand chief economist Tony Alexander pointed to today's announcement from The Warehouse, and ongoing petrol price rises, as giving further backing for that view.

Mr Alexander said BNZ was expecting the June quarter figure to be slightly worse than that for the first three months of 2008.

But BNZ did not necessarily see the economic weakness continuing to the same extent in the second half of the year.

Westpac is also expecting a worse contraction in the June quarter than in the three months to March.

That would confirm the country had endured a "deep" recession, although not as deep as that of 1998, research economist Dominick Stephens said.

"I think right now. . . we've probably lived through the absolute worst of this recession. The third quarter should be not as bad as the second quarter. We do think the whole of 2008 is going to be a pretty sharp correction for people, particularly urban consumers."

Then in 2009, Westpac was looking for a strong bounce back in the economy.

Contrary to the predictions of economic decline in the second quarter, the Reserve Bank has forecast an increase of 0.2 per cent

ASB chief economist Nick Tuffley is also less certain the country is headed for a technical recession, expecting the second quarter to be "roughly flat", possibly up or down slightly.

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But even without two shrinking quarters in a row, Mr Tuffley said there could still be a recession if growth over the course of the year was down.

"I'd say that 2008 as a whole is going to turn out to be a pretty flat year on average, looking from a quarter to quarter basis," he said.

He expected a couple of roughly flat quarters from here, with the possibility of some "very, very modest" growth starting to creep through at the end of the year.

The household sector was going to be "very, very subdued", Mr Tuffley said.


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