WRAPUP 1-NZ leader sees shallow recession, lower currency
Reuters - 2 hours 10 minutes ago
* PM sees shallow recession, warns NZ dollar to fall
* November house prices flat from October; breaks monthly
declines since August 2007
* Third-quarter residential building value lowest in 6 years
By Gyles Beckford
WELLINGTON, Dec 8 - New Zealand's prime minister said on Monday he expected the economy to experience only a shallow recession, a view that was backed by Treasury comments suggesting consumers will start spending more.
Housing data also provided some tentative evidence that the recession was losing some intensity by showing that prices in November were flat from October, the first time since August 2007 that prices had not fallen from the previous month.
Still, many analysts argue that New Zealand's economy will struggle to shake off recession in coming quarters given how rapidly the world economy is sliding into a downturn.
New Zealand's economy contracted in both the first and second quarters, meeting the common definition of recession. Figures due on Dec. 23 are expected to show the economy contracted further in the third quarter as the country felt the reverberations of the global financial crisis.
"The domestic recession is clearly worsening and we expect this to be compounded by a global recession. The need for easier monetary policy is intense," said Goldman Sachs JBWere economist Shamubeel Eaqub.
Prime Minister John Key told Television New Zealand a rapid series of rate cuts by the central bank would help support the economy so that the recession would be a shallow one. But the rate cuts would further knock the New Zealand dollar, which has fallen 35 percent from March peaks.
"It's a reflection of the fact that interest rates drive the exchange rate, and interest rates were cut aggressively, which was a good thing," the former foreign exchange dealer said.
A new Reuters poll has a median forecast for the New Zealand dollar to be $0.5260 by the end of March next year, before rising to $0.5600 by the end of 2009. It was changing hands at $0.5340 on Monday.
The Reserve Bank of New Zealand cut its benchmark rate by a record 150 basis points to 5 percent on Dec. 4 and said further cuts may be possible, although the central bank's governor said the economy had probably already moved out of its first recession in a decade. It has cut the rate four times since July.
The Treasury said falling consumer and commodity prices accompanied with tax cuts and lower interest rates would support spending in the fourth quarter, albeit temporarily.
The remarks reinforced its forecast that the economy would resume growth in the fourth quarter.
"These factors will support private consumption in the December quarter," the department said in its monthly economic indicators report.
The Treasury has forecast that the economy was flat in the third quarter, neither growing nor shrinking.
But a Reuters poll suggests the economy shrank by 0.5 percent in the third quarter, extending contractions of 0.3 percent in the second quarter and 0.2 percent in the first quarter.
Underlining expectations of a third-quarter contraction, the value of residential building work fell in the quarter to its lowest level in six years, data from government agency Statistics New Zealand showed. [ID:nWEL407223]
Pushing into the fourth quarter, November house prices were 6.8 percent lower than a year earlier, falling at the same annual rate as October. But from the month earlier, they were flat, rather than falling for the first time in over a year.
"We may be seeing signs of a slight spring recovery," said a spokesman for Quotable Value, a government agency that released the data.
The Treasury forecast further weakness in the labour market with the unemployment rate rising to 4.5 percent from 4.2 percent in the fourth quarter and reaching 5.5 percent in a year's time.
Retail home lenders have cut their fixed and floating mortgage rates in response to the central bank's rate cuts.
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