News & Views
Craig Stobo's Economic Commentary
The Clayton’s Recovery
I am showing my age here when I refer to NZ’s recovery when you are not having a recovery (adapted from an 80’s non-alcoholic beverage refrain).At 0.2% GDP growth for the June 2010 quarter or 0.7% for the June year, it was an unexpectedly lower outturn than official expectations. Rises in construction business services and retail trade was offset by declines in manufacturing and communications activity.
While recoveries are not normally straight lines from trough to peak, the current profile is very bumpy. When we emerged from our five quarter recession in March 2009 we hit a peak of 1% quarterly growth in December 09 driven by an inventory rebuild and Government support.
Since then business and consumer confidence has slipped, the unemployment rate has been revised higher and house prices are soggy. We have also had to manage two Canterbury disasters-the taxpayer-funded bailout of South Canterbury Finance; and the September earthquake. The former will inevitably result in losses to taxpayers; while the latter will result in short term GDP losses as businesses recover, but an increase in GDP in the medium term as reconstruction gets underway. The broader impact on our country’s balance sheet and the wider social costs are not yet well understood.
These events and the subdued nature of consumption activity ahead of the GST increase to 15% on 1 October have encouraged the RBNZ to keep official interest rates on hold at 3%.This will assist businesses to continue to restructure their balance sheets and cost structures to stabilise and improve profit margins.
Without increased assistance from consumer spending, and Government support constrained, economic growth can only be built by business investment (corporate merger and acquisition activity should pick up); and the net exports of our goods and services by leveraging off the strong economic engines of our western and north western trading partners.
Then we can have a real drink.
Craig Stobo