Economy contracts less than expected

Friday 27th March 2009

New Zealand's economy shrank a smaller-than-expected 0.9% in the fourth quarter, still the biggest slump in 16 years, as the prolonged slump dented manufacturing and household spending.

The fourth-quarter contraction compared to the 1% forecast in a Reuters survey and worse than the central bank's 0.8% estimate. The decline in third-quarter gross domestic product was revised to 0.5% from the previously reported 0.4%, according to Statistics New Zealand.

The New Zealand dollar edged higher after the report, trading recently at 57.80 US cents from 57.44 cents immediately before the figures were released. Reserve Bank Governor Alan Bollard this month said he expects the economy to trough mid-year and any further cuts to the official cash rate will be smaller than his most recent 50 basis point reduction to a record low 3%.

The economy began contracting in the first quarter of 2008 and some strategists are predicting a six-quarter-long recession. The International Monetary Fund yesterday forecast New Zealand's economy will contract 2% this year as companies shed jobs to underpin earnings and consumer sentiment stays low.

Household consumption was flat in the three months to December 31, after three straight quarters of contraction. Purchases of durable goods fell 1.4%.

Exports of goods and services fell 3.3% in the fourth quarter while import volumes dropped 0.6%. Total investment declined 5.3%, paced by a 14% slide in spending on new housing. Business investment declined 1.8%.

By Jonathan Underhill

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