New Zealand Economy Shrinks 0.9% as Recession Deepens (Update2)

By Tracy Withers

March 27 (Bloomberg) -- New Zealand’s economy shrank last quarter by the most in more than 16 years as home building tumbled, exports fell and businesses cut spending.

Gross domestic product declined 0.9 percent from the third quarter, when it fell a revised 0.5 percent, Statistics New Zealand said in Wellington today. That was less than the median estimate of a 1.1 percent drop in a Bloomberg survey of nine economists.

New Zealand is mired in its worst recession in more than three decades as manufacturing contracts, export demand slows and the housing market slumps. Central bank Governor Alan Bollard said this month the economy won’t begin growing until the second half of 2009, a sign he will keep cutting interest rates to revive domestic demand.

“Interest rates haven’t troughed at 3 percent,” said Annette Beacher, a senior strategist at TD Securities Ltd. in Sydney. “Almost everything has fallen off a cliff. It’s too soon to be talking about a recovery.”

Bollard reduced the official cash rate to a record-low 3 percent on March 12. He will pare the rate by at least a quarter-point to 2.75 percent at his next review on April 30, according to 12 of 13 economists surveyed by Bloomberg.

New Zealand’s dollar rose to 57.69 U.S. cents at 11:30 a.m. in Wellington from 57.46 cents before the report was released as traders reduced bets that Bollard will lower borrowing costs next month.

Global Recession

The economy shrank 1.9 percent from a year earlier, today’s report showed. In 2008, gross domestic product rose 0.2 percent from 2007, the weakest annual-average growth since 1998.

The quarterly decline was the most since the third quarter of 1992.

New Zealand joined Japan, Europe and the U.S. in sinking into a recession last year as the global credit crisis buffeted consumer and business confidence and cooled global trade. The U.S. economy contracted 1.6 percent in the fourth quarter, Japan shrank 3.2 percent and Australia declined 0.5 percent.

The World Trade Organization forecasts international trade will shrink 9 percent in 2009, the most since World War II. Exports account for about 30 percent of New Zealand’s NZ$180 billion economy.

Slowing demand has caused companies to reduce hours and fire workers. Sealord Group Ltd., the nation’s largest fishing company, said this month it will fire 180 workers at a factory in Nelson. Fisher & Paykel Appliances Holdings Ltd. is adopting a 35-hour week at its refrigerator plant in Auckland, enabling it to protect 60 jobs, it said this week.

Household Spending

The International Monetary Fund said yesterday New Zealand’s economy will shrink 2 percent in 2009 because households are constrained by debt and workers are worried they may lose their jobs. About 57 percent of consumers expect the economy will worsen this year, according to a Westpac Banking Corp./McDermott Miller survey published March 25.

Household spending, which makes up 60 percent of the economy, was unchanged in the fourth quarter after falling for the first nine months of the year. Purchases of durable items such as furniture and home appliances declined 1.4 percent, today’s report showed. Sales of food and other so-called non- durable goods also fell. Spending on services increased, led by domestic air travel.

Warehouse Group Ltd., New Zealand’s biggest discount retailer, reported a 24 percent decline in profit in the six months ended Jan. 25 after sales dropped. Retail spending will likely stay weak as rising unemployment weighs on consumer confidence, Chief Executive Officer Ian Morrice said on a conference call this month.

Housing, Investment

Total investment dropped 5.3 percent, led by spending on new housing, which slumped 14 percent in the fourth quarter, the fifth straight decline.

Business investment fell 1.8 percent as companies purchased fewer vehicles, plant and machinery. Commercial construction rose.

Exports of goods and services declined 3.3 percent in the quarter amid lower shipments of meat, fish and logs plus reduced less spending by visiting tourists. Import volumes declined 0.6 percent, led by passenger cars.

Output from goods-producing industries slipped, led by a 3.8 percent drop in manufacturing and declining home building. Primary production rose, driven by output from dairy farms that offset a decline in mining. Service industries output increased, led by finance and insurance.

The GDP deflator, a measure of prices, rose 4.8 percent in the year ended Dec 31.

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