NZIER sees 'synchronised slowdown' in regions & sectors, warns of potential double-dip recession

NZIER sees 'synchronised slowdown' in regions & sectors, warns of potential double-dip recession

The economy contracted in the September quarter with a "synchronised slowdown across regions and sectors," according to the New Zealand Institute of Economic Research (NZIER).

(Updates add comments from ASB economist Christina Leung and ANZ's Mark Smith).

In its Quarterly Survey of Business Opinion (QSBO) released today, NZIER says firms’ experienced activity fell from -4% to -15% on a seasonally adjusted basis in the September quarter from the June quarter.

"There was a synchronised slowdown across regions and sectors," NZIER principal economist Shamubeel Eaqub said.

"Construction and financial services slowed most sharply. Manufacturing exports were steady at barely positive."

“Activity contracted and expectations are being revised down," Eaqub added. "The recovery continues to disappoint optimistic expectations. Seasonally adjusted business confidence fell from 26% to -9%, the first negative reading in a year. Renewed weakness in activity, profits and a shallow recovery have depressed confidence."

At a Wellington media briefing Eaqub reportedly put the prospect of a double dip recession at 50/50. Statistics New Zealand recently said Gross Domestic Product (GDP) rose just 0.2% in the June quarter.

Eaqub said the QSBO showed  business profitability was deteriorating again; something that was highly unusual for this stage of an economic recovery.

He said this could weigh on future hiring and investment, although hiring and investment intentions remained encouragingly resilient. Actual hiring eased to -12% from -7%, but was still consistent with improving hiring. Eaqub said overall labour was getting harder to find, but a little easier in construction and retailing, which would support wage growth over the coming year.

Inflation subdued

Meanwhile, actual prices charged edged up slightly, 15% from 13%, but remained consistent with subdued inflation.  And although cost and price expectations were rising, companies have little pricing power and a lack of demand was the key issue.

"Capacity pressures, which indicate medium term inflation, are mixed," said Eaqub.

"Capacity utilisation of manufacturers and builders eased a touch, but remains elevated (90.4% from 90.8%). Capacity as a constraint on the other hand remains at a historically low level."

The survey results showed no discernible impact of the September 4 Canterbury earthquake.

"Renewed economic weakness, distant inflationary pressures and a fragile global setting will see the Reserve Bank hold the Official Cash Rate (OCR) steady (at 3%) until early 2011," Eaqub added.

Firms struggling to pass on costs

ASB economist Christina Leung said the key results from the QSBO were the big fall in headline business confidence and drop in firm's own trading activity to -2% from 14.7%.

Leung said it appeared that firms were finding it hard to pass on rising costs, with a smaller proportion of businesses indicating they intend to raise prices despite the increasing proportion of businesses facing higher costs. This had hampered profitability and was the key driver behind the fall in business confidence.

"Further declines in profitability over the coming year may lead businesses to put expansion plans on hold," said Leung.

She doesn't expect the Reserve Bank to increase the OCR until next March.

Although pessimism was particularly acute in the building and retail sectors, Leung said following the Canterbury earthquake reconstruction activity should boost the building sector over the coming year.

Deleveraging taking a toll but ANZ predicts 4% growth next year

ANZ economist Mark Smith described the QSBO as "unequivocally weak across the board." He said deleveraging continued to act as a headwind for economic activity.

"The QSBO was weaker than the National Bank Business Outlook was flagging, and points to a soggy second-half year GDP performance, following a subdued first-half," said Smith.

"But we are still sticking to our above consensus call for calendar 2011, expecting growth of close to 4%."

The better outlook next year was based on increased rural incomes (Fonterra's forecast payout for the current 2010/11 season is NZ$7.00-NZ$7.10 per kilogram of milk solids up from NZ$6.37 in the 2009/10 season), an unleasing of pent up demand, earthquake reconstruction work and Rugby World Cup related activity.

ANZ also expects the Reserve Bank to leave the OCR unchanged until the first quarter next year.

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30 Comments

..and since months most “Bankers” and some other "Financial Idiots” are telling the public the opposite - fabrications ? Often they don’t have comprehensive picture of the situation in the world.

 Today the world is facing a  sheer number, severity and the most danger, accumulation and speed of worldwide problems.The world changed and is changing forever, with many (un)predictable scenarios.

Double dip right on cue.

Still its all just bearish make believe eh GBH/Chris?

"...... warns of potential of double-dip recession " ........ the NZIER say ! Not that it will happen , or is happening ( as Bernard often states ) , but that it may happen .

Booms/Busts/Recessions are mere facts of economic life . Get used to it ............ But this website has been proclaiming a double-dip recession for two years now . It may eventually be right . Fat lotta good that'll do for anyone who adjusted their finances according to Bernard's predictions ............. The goat gizzard readers of ancient Rome did no worse than our venerable " Chicken-Little " Hickey .

There seems to be an increasing note of desperation in your posts GBH. I hope you are not too overly exposed to the second leg down........

 

Maybe you should have listened to Bernard.
 

........... desperation !... I think not . I live on a beach under coconut palms ............. everyday hordes of gorgeous little nymphets sashay  their way down the beach past me ........ And some of them are women ....... Life is sweet !

....... I do listen to Bernard . But I take advice from luminaries such as Jim Rogers / Steve Forbes / Ken Fisher / Peter Lynch / Cheech & Chong / and Kramer ( Seinfeld of course , not the guy on CNBC ) .

And yet you suffer 10 hour power cuts and put up with an infrastructure you freely admit is tottering?

An over-populated developing nation with a history of rampant corruption throughout every part of its public sector will prove to be a poor choice of home in the next 10 years I feel. Particularly so when you are a foreigner. The rights of foreigners are generally the first to suffer when a society is put under pressure - and boy, there is a ton of pressure coming down the track.

GDP growth of 6.3 % this year . The new government is building on the previous one's attempt to stamp out corruption . Borrowings from overseas are being used to up-grade the infrastructure ............. not to pump up house and dairy farm prices . Foreigners have a much easier time here with government bureaucracy , than they do in some neighbouring countries .

See Andy Rodgers comment to you , below . Makes some good points !

errrr I think Andy Rogers was making an even more bearish case than I was GBH. Read what he says again - basically he is saying that if the government hadnt been propping up the economy with a slug of deficit building things would be much much worse, no?

Jim Rogers? (not andy i suspect)....and yes he's very bearish on the US has been for a few years.......and yes whats stopped the US economy nose diving has been the stimulus, however its greatest effect has been in the financial sector......where it wasnt needed...and it was too small....2/3rds of what it was meant to be....now Obama will reap his poor decision on that.....

Apart from that to my mind its questionable looking at the un-emplyment numbers that main street has ever exited the last recession....technically lots of hocus pocus so its a "yes"....reality no jobs......and running at 10% but really 16~18%...

It is going to take years to get down, if there was ever going to be a recovery.....so structural un-emplyment of 10~15% and thats a danger for NZ.

regards

Gummy,

Watch out! The QSBO is falling.!

We'll bring you around to the dark side one day...

cheers

Bernard

I'll bring the goats directly to your office ............ Start cutting and gizzard squeezing pronto  , before home-kill is banned !

andyh - What many people are forgetting is that the NZ Gov't is currently spending $10 billion per year more than they are receiving in revenues to get this negative result.  What happens when this stimulus is withdrawn?  A triple dip maybe?

Mais oui Andy. The same of course is true in spades of the US where spending of hundreds of billions of $ have succeeded in........erm........stabilising the U6 unemplyment rate @ nearly 17%?

I have updated the story, including ANZ's economists reiterating their prediction for growth of nearly 4% next year. Gummy Bear Hero, if Bernard's Chicken Little, who are they?

......they are Pollyanna Creeps [ Google it ! ] .............. The truth probably lies somewhere in the middle , between their forecasts , and Chicken-Little Hickey's prognostications .

The fairy god mother? wicked witch of the west?

Take your pick all are in fantasy land....its stunning that so many are in the [neo-]classical mold when in fact the mess we are in can be lain at that door quite correctly.....based on last year and this year I see BH's putting them in here as farcical amusement for us....

4% next year....make a date to review....score out of ten for weasels words.....

regards

Link below should become the “ Economic Bible” of our nation.

http://www.green-innovations.asn.au/econ-mdl.htm

It's not a double dip.....it is a new permanently reduced level of activity. As for the EQ not showing up....it will....so will the storm. The public are always bloody slow to understand that they have been shafted....but once the penny drops look out....no more splurging with credit...except for the real idiots.

A few points to bear in mind:

a. NZ's terms of trade on its exports are at record high levels; however

b. The NZ Govt is still borrowing $240m per week to maintain "entitlements" which we simply can not afford;

c.  According to Fitch, NZ'ers are now significantly deleveraging and hence our private foreign debt is not going down but our public foreign debt is increasing. Hence, total foreign debt is continuing to climb.

These points don't paint a good picture for the future of NZ Inc. If we need to borrow from foreigners when our terms of trade are at record levels and growth and investment is stagnent then that says one thing:

- we can not maintain a first world welfare system when we have a third world productive capacity.

As I am continually told when working up in Singapore - beautiful country, friendly people -- \How on earth do you think you have a viable future when you pay large sections of the community to do nothing apart from continually reproducing more poor people and you force your productive people and industries to Australia?

Good question.

A regular Kiwi at last ! ............I like the cut of your jib , and I think that Paul Henry would too . ......... Would you like to be our GG ?

GG I also think New Zealand doesn’t have the right mixture (framework) for sustainable growth. Entire segments, which would make us wealthy, healthy and happy as a society, are missing in our economy.

The link provided above also says: ...favouring a political climate where economic management skills for industry and sectoral development (rather than simply macro-stabilisation) is practiced successfully thus fostering dynamically superior orientations for the economy (this is especially important in Anglophone countries that have neglected economic management aimed at relatively rapid and profound structural adjustment compared with many European and Asian economies)

Here again the "Economic Bible" of New Zealand:

http://www.green-innovations.asn.au/econ-mdl.htm

"How much is Google worth? Google's market capital is $153.4 billion as of October 5 2009."

"How much is Microsoft worth? Microsoft has a current market capitalization (or "worth") of $227.89 billion."

Google the same question for IBM, Intel, Apple, etc.

Just imagine how wealthy NZ would be if these were local companies.

Sam Morgan flogged Trade Me off to the Aussies for NZ$750 million.

The rest of the country hopes to get wealthy by trading cowshit and houses.

"Banana republic is a term that refers to a politically unstable country dependent upon limited agriculture (e.g. bananas), and ruled by a small, self-elected, wealthy, and corrupt politico-economic clique." - Wikipedia

Exxon $US 317 B. capitalisation . Apple Corp $US 255 B. . Walmart $US 191 B.

We have Fonterrible ............ meebee $NZ 10 B. ............and ............. and ............ hmmmmmmmmm , better go Google some more .............. Allied Farmers anyone ? Rakon !

As an Ozzie, I am absolutely amazed that the average kiwi punter would believe a Bank telling them that growth next year of 4% is still the go.

Then I read this:

http://www.stuff.co.nz/business/industries/4198050/Recession-not-returni...

"My sense is that they are feeling a bit better now that summer has come, economic activity is starting to pick up."

I just can't take yr PM & goverment seriously..............

 

And neither can we take our PM & government  seriously .............. But your's ain't a whole lot holier than ours , are they ............ How much did Julia have to bribe the independents , to support her ? Another sealed  road in the wop-wops to an M.P.'s farm ???

Kunst

I agree totally with your comments. NZ needs a vision to create a sustainbale future. We could lead in world in sustainable technology and a sustainable society. We need strong leadership and a vision we can all believe in. 

So we are screwed.....even if we had such quality leadership waiting in the wings, joe and jane consumer are going to vote for the status quo ie the political party of their socio-economic group just as they have always done....

I mean, Labour will try and prop up the un-propable because a) they are social engineering misfits and b) Their internal minorities will demand it.....sustainable? uh no....their energy spokeperson is a lawyer....so absolutely no understanding.....peak oil is something he worries about in his hair....

National, as we can see we have Jerry Brownlee as energy loser....uh I mean minister who quite frankly thinks sustainable means pillaging the environmental capital for ever.....So he's moved on from a) lots of oil down south could be a trillion barrels; to b) lots of hydrates in a location thats...."easily" extractable...LOL....he has no concept....

The Green's as an ex-member, what can I say....they have lost it.....green not really....at best trying to re-invent socialism....while playing at being NIMBies and hatiing businesses.......clueless on the scale of the problem....even though they are supposedly ahead and an early recogniser of Peak Oil......

So just where is this leadership coming from? Winston "whining" Peters? Rodney "do as i say not as I do" Hide?

ho hum....desperate......

regards

Yes it's so tragic, and has been for a very long time. Will the moron electorate come to their senses anytime soon, and demand/accept the medicine that is needed for NZ to slow the wreck coming to fruitiion, NOT A CHANCE. Too stupid, too selfish and too much time in front of the tele to even have an inkling!

The politicians will do what they can get away with. The people have the power, they have been groomed and pacified into a comatose state. What will wake them???

ANZ' s recent predictions are disappointing - I used to rate them, not any more.

There's no way we'll get 4% growth next year - 2.5% if we are lucky. NZIER are the shining light in a bunch of useless ponzi-spruiking economist outfits.

time to get an octopus Bernard.

by the way, apparently they have eight brains (one in each tentacle). Maybe they really do have some unexplainable pyschic ability