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Building approvals fall to 22-year low as economy wilts

Tuesday 30th September 2008

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New Zealand home-building approvals fell to a 22-year low last month, reflecting an economy that may not climb out of recession until the final quarter of the year.

The number of permits issued fell 7.9% to 1,284, seasonally adjusted, in August, extending a 1.7% slide in July, Statistics New Zealand said. The number of approvals tumbled 43.3% from a year earlier.

New Zealand's economy may have contracted 0.5% in the third quarter, according to a Bank of New Zealand, extending the first recession since 1998. Some economists are anticipating the central bank will cut the official cash rate 50 basis points next month to 7% and make at least two further reductions to help revive the economy.

"As the economy reflects the reality of the housing bust and contagion from global financial markets, expectations of a quick recovery are likely to be dashed and add to the urgency to ease interest rates," said Shamubeel Eaqub, economist at Goldman Sachs JBWere.

Eaqub expects a 32% contraction in residential building in the year ending June 30, 2009. Job losses in the construction industry may reach 60,000, he has forecast.

Fletcher Building, the biggest construction company on the NZX 50 Index, fell 5% to NZ$6.55 today, mainly reflecting the impact of the global slump in equity markets after the US Congress failed to approve a US$700 billion rescue plan. Fletcher has declined 40% this year.

By Jonathan Underhill

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