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New Zealand recession to last to mid-2009 - report
Reuters - 58 minutes ago
WELLINGTON, Dec 15 - New Zealand's economy will remain in recession until the middle of 2009 before a return to weak growth, requiring the central bank to cut rates to record low levels, a private research firm said on Monday.
Business and Economic Research Ltd said it now expected the economy to contract by 1.3 percent in the year to March 2009. In September it forecast 0.6 percent annual growth and in June 1.8 percent growth in the same period.
"The hits to sentiment continue and this acts against the chance of any rapid consumer-led recovery," said economist Ganesh Nana in BERL's quarterly report.
The recovery would be led by increased spending on infrastructure, because exports needed an increase in global demand, and consumers were set to remain cautious given the stream of bad news, he said.
"With construction capacity now becoming available it makes common sense to ensure public sector construction demand steps in to stop this capacity yet again being lost overseas," Nana said.
The economy has been in recession since the beginning of the year, and most commentators expect it to remain so into 2009.
However, the governor of the Reserve Bank of New Zealand has said the economy is now emerging from a shallow recession into a period of shallow growth.
BERL said it expects the central bank to cut its official cash rate to an all time low of 3.5 percent by the middle of next year, which is in line with the consensus of analysts' forecasts in the latest Reuters poll.
The RBNZ cut rates by a record 150 basis points to 5 percent on Dec. 4 to stimulate the economy and lift it out of recession, and said further, smaller cuts were possible depending on how much inflation pressures ease.
BERL said the New Zealand dollar was likely to fall sharply to around $0.4500 <NZD=> because of troubled financial markets and New Zealand's large external deficit. The kiwi would strengthen modestly as markets returned more to normal and that would bolster exports.
The forecaster said annual inflation, which hit an 18-year high of 5.1 percent in the September quarter, would slow sharply to a low of 0.3 percent in the year to September 2009, because of falling petrol prices and the economic slowdown.
The central bank has forecast inflation to fall back within its 1-3 percent target band in the first quarter of next year.
However, RBNZ Governor Bollard last week said inflation pressures remained high, especially domestically-generated, and would shape future rate cuts despite commentators relegating it to the "back seat".
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