Somewhat W-shaped global recovery on the way

Friday 24th July 2009

The world faces a "somewhat W-shaped" economic recovery, with a strong short-term bounceback from the depths of the recent recession followed by a dip in activity as rich nations grapple to control ballooning public debt.

That's the conclusion of Jason Wong, head of investment strategy at AMP Capital Investors, which released its second-quarter review and outlook in Wellington today.

A major investor in equities, fixed interest and property portfolios in both New Zealand and globally, AMP experienced quarterly growth in the three months to June in all its portfolios, with its balanced portfolio producing the first positive growth after three negative quarters.

New Zealand property was the only sector to show a decline in the quarter under review, with negative returns of 9.9%, compared with international property returns of 31.6% for the quarter, albeit that year to date returns from international property were still negative 5.5%.

AMP Capital's hedged global shares showed 20.2% growth for the quarter, "one of the best quarters for a decade," said Wong, while New Zealand equities returned 8.% for the quarter and 4.5% for the year to June.

"The recession in New Zealand is basically over," amid signs of a very strong increase in industrial orders and restocking in economies around the world following the precipitous fall in activity created by the global credit crunch, Wong said.

"We can expect recovery through to the end of next year," Wong said. While shares were recovering, New Zealand's equities market had not dropped as far as many internationally, so there was less upside for them.

"Growth will be below track and nothing much to get excited about," he said. "Decent growth will be very difficult to achieve with global headwinds."

The big test for the world would come as the steam came out of the current restocking phase and governments turned to plans to tighten fiscal and monetary policy, both of which are historically and unsustainably loose at present after massive global efforts to stave off a global economic crisis.

However, while the world had had a hard time of the latest recession, Wong cautioned against viewing New Zealand's five quarter-long recession as particularly harsh by the standards of the past.

While the 2008/09 recession had produced a relatively large 4.2% cumulative fall in output, the longest recession in recent times was between 1987 and 1992, which lasted 19 quarters and saw a 4.6% cumulative contraction.

Likewise, there had been recessions that lasted eight quarters in 1965/66 and 13 quarters between 1974 and 1977, when cumulative economic activity shrank 7.3% as the world oil shocks took hold.

"This looks like a run-of-the-mill recession compared to other economies where it has been the worst since the Great Depression," Wong said.

While there was a lot of focus on the strength of the New Zealand dollar against the greenback, the cross-rate with Australia - New Zealand's largest trading partner - was comparatively low at around 80 Australian cents.

Businesswire.co.nz

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