Possibility NZ entered into double-dip recession in second half of 2010, PM Key says

There is a possibility New Zealand had two quarters of negative GDP growth in the second half of 2010, meaning it entered a technical double-dip recession, Prime Minister John Key said this morning.

Talking on TV One's Breakfast program to presenter Corin Dann, Key said there might have been a technical recession.

"The third quarter was slightly negative, so it’s possible we have a technical recession. I think the general consensus is we won’t, but it’s always possible," Key said.

"In the UK, the last quarter was minus 0.5%, in Australia it was 0.1%, so there wasn’t exactly strong growth," he said.

"What happened around the world was for the first six months was very strong and optimistic, the second part of six months was dominated by the financial collapse basically of Ireland, and ultimately the problems in Spain, Greece and Portugal. And that’s the very reason why in my speech at the start of the year we’ve highlighted that we can’t afford to let ourselves get into that position."

"It’s the same thing with unemployment. If you look at unemployment that’s very much a lagging indicator, not a leading indicator so it’s what’s happened," he said.

Key said it was his expectation that unemployment would be below 7% when New Zealanders went to the polls on November 26.

"Treasury’s view is the household labour force survey which came out last week, is notoriously volatile. What it said was over the year we created 27,000 jobs. So we didn’t reduce the number of jobs, we created more jobs. The question is did we create enough, and the answer is ‘no we need to create more for a growing population,'" Key said.

“The plan has to be, one, we have to take the pressure off the private sector so they will invest. In the end job creation comes because someone says ‘look I think there’s a good investment opportunity here, I think I can employ some people and I think I can get a return on my capital," Key said.

"One of the reasons why we don’t want to grow the deficit and keep borrowing money in the way that Phil Goff wants to on a way that is unfunded is because we have to take the pressure off the Reserve Bank Governor," he said.

"The second thing is we have to lift savings so that we can fund that growth," Key said.

But aren’t these longer-term issues, Dann said, adding in the short term we could still have a very very tough year.

"We could do, but we could also talk ourselves down. I think it’s important to look at what is likely to happen," Key replied.

"Commodity prices are very strong," Key said, referring to strong prices at Fonterra’s last internet auction for milk powder..

But that also means high food prices for Kiwis, Dann asked.

“OK, but you can find a counter argument to everything. What I’m saying to you is there is an international demand for our goods that we sell," Key said.

World Cup effect?

"Secondly, Rugby World Cup is more than likely to have a stimulatory effect on New Zealand – a lot of people coming in. Third thing is the Canterbury rebuild will add to economic growth in New Zealand," he said.

"Fourthly, we are starting to see some signs – I do a lot of business breakfasts, I did a couple in the last week which I do every year, so they’re a bit of a litmus test – confidence is much stronger. The number of jobs, for instance, being advertised is going up.

"If you look at the unemployment benefit over Christmas, we thought we’d add about 8,000, because typically students come on and that sort of stuff. We actually added 4,500. Last week we thought about 300 would come off, 800 came off.

"So we are starting to see some good things, I don’t think we should talk ourselves into recession," Key said.