New Zealand recovery may be stalling

2010-07-06 08:23

Wellington - New Zealand's export-led recovery may be stalling, according to a business confidence survey released Tuesday.

The New Zealand Institute of Economic Research's quarterly survey of business opinion found renewed weakness in manufacturing, construction and investment intentions in the June quarter.

Small firms, which usually lead the economic cycle, experienced weaker conditions in the three months to June, the survey found.

"Firms are less optimistic as the economy has yet again failed to deliver on expectations of a strong recovery," said the NZIER's principal economist, Shamubeel Eaqub.

"Seasonally adjusted business confidence eased from 36% to 28%. The recovery may be stalling. The outlook is still fragile."

The percentage is obtained by subtracting the percentage of respondents expecting business conditions to decline from those expecting an improvement.

Eaqub said the economy would normally be expected to be recovering strongly at this stage of the cycle.

The slowing momentum of global growth and financial market disruption also added risks to the outlook, the survey found.

New Zealand slumped into recession at the start of 2008, emerging only in the second quarter of last year, with recovery driven largely by agriculture-dominated exports, especially dairy products.

But growth eased to 0.6% in the three months to March this year, down from 0.8% in the previous quarter.

The NZIER's warning came a day after the Treasury said belt-tightening around the world and possible government defaults on sovereign debt posed risks for the economy.

Other economists interpreted the survey more optimistically, saying the results painted a picture of a mild economic recovery.

"The current level of firms' own assessment of trading conditions suggests economic growth over 2010 will still be reasonably healthy," said ASB bank chief economist Nick Tuffley.

ANZ bank economists said the results were still consistent with economic growth of three percent this year.

"We would characterise today's results as the reality of a slower recovery dawning on businesses, as opposed to the recovery itself coming under threat," they said.

But Eaqub said the central bank would need to take care not to stifle already weak domestic demand and derail a fragile export recovery, Eaqub said.

The Reserve Bank of New Zealand raised the official interest rate last month for the first time in nearly three years from a record low of 2.5% as the economy entered its second year of recovery.