Building approvals fall to record low

Friday 28th November 2008

New Zealand home-building approvals fell to a record low last month amid evidence of a prolonged recession which is driving up the jobless rate and eroding household incomes.

Building approvals fell 22% seasonally adjusted in October from the previous month, when they dropped 11.1%, according to Statistics New Zealand. Some 1,121 permits were issued last month, the lowest since the statistician began tracking them in 1982.

"Given the usual lags we expect building activity to plunge in the new year, which is likely to be accompanied by significant job losses in the related sectors," said Shamubeel Eaqub, economist at Goldman Sachs JBWere. "Accumulating evidence of a deepening recession further intensifies the need for urgent monetary policy relief."

Eaqub is predicting the central bank will cut the official cash rate 150 basis points to 5% next week. Economists are divided on whether Governor Alan Bollard cuts by 100 or 150 basis points, according to Reuters. New Zealand has led the world in its contraction, beating recessions in the major economies by at least two quarters.

The New Zealand dollar fell to 55.09 US cents after the report was released, from about 55.30 cents immediately before.

The decline was exacerbated by a slump in apartment permits, with just 50 issued last month, an eight-year low. Excluding apartments, approvals fell about 7%.

By Jonathan Underhill

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