By Tracy Withers
Dec. 11 (Bloomberg) -- New Zealand home sales tumbled in November and the manufacturing industry shrank by the most since at least 2002, suggesting the economy is mired in its deepest recession in 18 years.
Home sales dropped 45.4 percent from a year earlier, the Auckland-based Real Estate Institute of New Zealand Inc. said today. The performance of manufacturing index fell to 35.4 last month from 43.3 in October, Bank of New Zealand Ltd. and Business New Zealand said in a separate report.
The declines follow figures showing export volumes, retail spending and construction work dropped in the third quarter, indicating New Zealand’s economic slump has worsened amid the global credit freeze and contractions in the world’s biggest economies. Reserve Bank of New Zealand Governor Alan Bollard has lowered interest rates by 3.25 percentage points since July to try to kick-start domestic demand.
“The economy is entering the second stage of this protracted recession,” said Stephen Toplis, BNZ’s head of research in Wellington. “Growth of our trading partners is falling rapidly. This has resulted in a sharp fall in commodity prices and slumping disposable income growth is leading to pressure on exports.”
The $130 billion economy began shrinking in the first three months of 2008 amid a slump in housing sparked by record-high borrowing costs and as a drought cut farm production. The recession has been extended by the global slowdown which has cut exports, tourism, consumer confidence and business investment.
Economy Shrinks
Toplis expects the economy contracted in the third quarter and probably will shrink again in the final three months of 2008.
The government publishes third-quarter gross domestic product figures on Dec. 22. Last week, Bollard said he expects a 0.3 percent contraction, and some growth in fourth quarter as the economy embarks on a “shallow recovery.”
Finance Minister Bill English, whose National Party was elected as government on Nov. 8, is counting on lower interest rates and income-tax cuts to stoke spending. Parliament today passed legislation for a NZ$4.4 billion ($2.4 billion) tax package over three years starting April 1.
“The tax cuts we have delivered will stimulate the economy in the short term by putting cash in people’s pockets,” English said. The legislation is designed to “cushion the impact of the recession and increase New Zealand’s economic productivity.”
Production Falters
The manufacturing index fell to the lowest since the series began in 2002 because of a decline in orders, today’s PMI report showed. The index has been less than 50, indicating that manufacturing is contracting, since May.
“The global manufacturing depression has well and truly hit New Zealand,” said Phil O’Reilly, chief executive officer at Wellington-based Business New Zealand. The JPMorgan global performance of manufacturing index posted the biggest slump since it began in 1998, he added.
“Its tough-going for many manufacturers. There’s no clear indication we have yet reached the lowest point for this cycle.”
New Zealand’s home sales fell to 4,279 in November, the Real Estate Institute said. Sales are close to the 19-year low of 4,220 recorded in August.
The median house price dropped 4.1 percent from a year earlier to NZ$337,500 ($183,000). It took 44 days to complete a house sale, up from an average 36 days in November last year.
Still, the time needed to sell a home fell from 47 days in October and 52 days in September.
“People are taking a wait-and-see approach,” said Institute President Mike Elford. “They are also watching for the effect of interest-rate cuts to come into the equation.”
Bollard reduced the benchmark rate to 5 percent on Dec. 4 and called on lenders to pass on cheaper borrowing costs to consumers. Trading banks have lowered the variable home-loan interest rates to about 8 percent.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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