Thursday, December 23, 2010

Big Dipper

The government statistical agency has just released economic growth statistics for the September 2010 quarter. The Christmas news is that GDP has declined by 0.2 percent.

The New Zealand economy peaked in the Dec 2007 quarter. The recession began in Mar 2008 quarter, a quarter earlier than in most other countries, because a serious drought affected our agriculture industries. The economy bottomed out in the March 2009 quarter after five quarters of recession, with GDP 3.5 percent below the peak. The banks in New Zealand had not got caught up with the subprime junk that contaminated the Northern Hemisphere, so the decline was not as big as in many other countries. The recession in the United States was almost twice as deep.

Since the bottom of the recession, the economy has been recovering slowly, but now it has stumbled, with only half of what was lost being recovered. Our GDP is still 1.7 percent below what it was at the peak. The construction industry has not recovered and the retail sector is still struggling. The good news is that the NZ dollar has weakened over the last few months as speculators have withdrawn, and prices for dairy and meat products, which are a huge chunk of our exports, are at record highs. Unemployment is below 7 percent, so there is no reason why the 0.2 percent decline is a signal that things will get dramatically worse.

Some commentators are talking about a double dip depression. That is a bit misleading, because there is no indication that we are going into a massive decline. A better description would be a big dip.

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