New Zealand, Facing a Recession?

New Zealand central bank Governor Alan Bollard may be pushing the conomy into a recession by keeping interest rates at a record to fight inflation, ignoring factory closures and slumping consumer spending., Bloomberg 6/3/2008 7:43:19 PM

The Reserve Bank will keep the official cash rate at 8.25 percent tomorrow in Wellington, according to all 15 economists surveyed by Bloomberg. Ten say Bollard will lower the rate by September amid mounting evidence inflation will slow.

New Zealand's economy probably shrank in the first quarter as high borrowing costs reduced spending and stalled the housing market, the Treasury Department said May 22. Tax cuts and record- high dairy prices are failing to boost confidence among consumers and businesses, leaving Bollard under fire for keeping rates too high for too long.

Consumer prices rose 3.4 percent in the year ended March 31, and annual inflation is forecast to stay above the central bank's 1 percent to 3 percent target range until mid-2009, Bollard said in March.

Last week, two forecasters said New Zealand is in a recession, citing a slump in domestic demand and confidence. First-quarter retail spending fell 1.2 percent, the biggest drop in 11 years, and employment declined the most since 1989.

ANZ National Bank Ltd., the nation's biggest lender, said the economy contracted 0.3 percent in the first two quarters of 2008. An ANZ National index of business confidence fell to a 17-year low in February and was little changed in April.

First NZ Capital Group also said the economy shrank in the first two quarters, citing ``deeply depressed'' consumer confidence and a slump in the housing market. The government will publish the first-quarter gross domestic product report on June 27 in Wellington.

Consumer confidence is the lowest on record, and house sales fell to a 16-year low in April.

Slowing sales are eroding earnings at retailers such as Briscoe Group Ltd., which says profit from its sporting goods and home-ware stores may drop more than 50 percent in the six months ending July 27.

Companies are closing factories and eliminating positions. Dunedin-based PPCS Ltd., the nation's biggest meat processor, said last month it will shut two abattoirs and fire 604 workers. Fisher & Paykel Appliances Ltd. said in April it was closing a dishwasher and oven manufacturing plant, with the loss of 430 jobs.

Inflation is being fanned by rising fuel and food prices. Gasoline has jumped 28 percent the past year to a record NZ$1.97 a liter ($5.81 a gallon). Groceries have risen 11 percent.




New Zealand, Facing a Recession?