New Zealand Economy May Rebound as Spending, Migration Gains

By Tracy Withers

Aug. 21 (Bloomberg) -- New Zealand's economy, which was probably in a recession in the first half of this year, may have passed the low-point in demand amid early signs of a pickup in immigration and spending, economists say.

Reports today showed annual immigration growth rose to a seven-month high in July, while spending on credit and debit cards rose for a second time in three months. Two surveys this week showed consumers are more confident about the economy and the housing market.

The $105 billion economy contracted in the first quarter and probably shrank in the three months ended June 30, putting it into the first recession since 1998, according to the Treasury Department. Consumer spending posted a record plunge in the second quarter as soaring fuel prices and credit costs crimped demand.

``Things are getting better, but if they weren't you would be getting worried,'' said Robin Clements, chief New Zealand economist at UBS Ag in Christchurch. ``The first part of a recovery is finding the bottom. Maybe there are some hints that is occurring.''

UBS expects the economy will probably shrink in the third quarter before expanding in the final three months of this year. The Treasury estimates annual growth in 2008 will be as low as 0.5 percent compared with 3.1 percent in 2007.

``The foundations are starting to fall into place,'' said Clements. ``We want to see confidence on the mend. It has been at perilously low levels and has to get better.''

More Migrants

The number of permanent migrant arrivals exceeded departures by 5,201 in the 12 months ended July 31, the most since December, Statistics New Zealand said in a report released today in Wellington.

Rising immigration buoys spending and demand for houses. The number of consumers saying it is a good time to buy a house rose last month to the highest since 2003, ASB Bank Ltd. said in a survey published on Aug. 20.

Consumers were less pessimistic about the outlook for the economy, according to a Roy Morgan poll conducted in the two weeks ended Aug. 10. Fifty percent of respondents said they would be better off in a year, the highest measure since March.

Spending on debit and credit cards rose 0.9 percent from June, according to a second report today from the statistics agency. The value of transactions excluding fuel, workshop and vehicle sales gained 1.2 percent.

Higher spending in July follows a report last week that retail sales increased 0.9 percent in June, which was more than economists forecast.

Fuel Prices

To be sure, monthly spending figures aren't adjusted for inflation and are being bolstered by higher fuel and food prices that leave consumers with less to spend on discretionary items. Excluding inflation, retail sales fell a record 1.5 percent in the second quarter, the biggest drop on record.

Economists say the latest indicators are a sign the economy isn't deteriorating rather than evidence of a dramatic turnaround.

``Things are not getting any worse,'' said Mark Walton, markets economist at Bank of New Zealand Ltd. in Wellington. ``We have seen some early signs of consolidation, but we think growth for the rest of this year will be pretty feeble.''

Bank of New Zealand also expects the economy will contract in the third quarter. Walton said lower interest rates, a fall in the currency and income tax cuts from Oct. 1 will combine to boost the economy in 2009.

Reserve Bank Governor Alan Bollard cut the benchmark interest rate a quarter point to 8 percent last month, the first reduction in five years, and said more declines are likely. The rate is likely to drop to 6.5 percent in the next year, according to a Credit Suisse index based on swaps trading.

New Zealand's dollar has slumped 11 percent against the U.S. currency the past six months, the worst performer of 16 major currencies tracked by Bloomberg.

The falling exchange rate and high global prices for butter, cheese and other commodities will bolster exports, which make up 30 percent of the economy.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.