Double-dip recession avoided - Quarterly Survey of Business Opinion January 2011, media release

New Zealand Institute of Economic Research (Inc)
Media release, 11 January 2011

Embargoed until 10am, Tuesday 11 January 2011

NZIER Quarterly Survey of Business Opinion

Double-dip recession avoided; medium term challenges linger

NZIER’s Quarterly Survey of Business Opinion (QSBO) shows the economy rebounded in the December 2010 quarter, after contracting in September. Firms’ experienced trading activity improved from -15% to -1% on a seasonally adjusted basis.

The rebound was patchy, concentrated in large firms and in the upper North Island. Activity fell sharply in Canterbury, reflecting post-earthquake economic disruption. Nevertheless, most sectors experienced better conditions in December. There was a particularly large rebound in retail sales volumes. Most of the survey responses were received in the first half of December, so this will not reflect the lacklustre retail environment closer to Christmas.

“The economy rebounded from a weak September quarter avoiding a double dip recession. The recovery remains shallow and slow compared to previous cycles. A return to growth has brightened business mood: seasonally adjusted business confidence rose from -8% to 3%. This confidence is slowly filtering through to new hiring and investment, but this needs to accelerate to drive a sustainable recovery. Continued deleveraging by households, restrained government spending and a soft housing market will influence the medium term outlook,” said Shamubeel Eaqub, Principal Economist at NZIER.

Inflationary pressures ease
Inflation remains subdued and actual prices charged eased slightly (12% from 15%). Cost and price expectations also eased, following earlier GST-related increases. Firms report a lack of demand; this has reduced their ability to raise prices. Capacity pressures, which indicate medium term inflation, moderated. Capacity utilisation of manufacturers and builders eased to the long run average (89.0% from 90.4%). These figures suggest that the RBNZ can continue to hold the OCR at current levels for at least six months.

Labour market improves
Labour market indicators remain resilient. Actual hiring improved (-3% from -12%) and is consistent with better employment opportunities. Labour is becoming harder to find, which will support wage growth over the next year.

Canterbury earthquake disruption; building employment surges
The Canterbury earthquake led to significant economic disruption. Seasonally adjusted trading activity slumped in Canterbury (-33% from -6%, compared to the rest of New Zealand rising from  15% to 4%). All sectors reported weaker activity in December, but Merchants showed the largest slump. The region is gearing up for reconstruction activity. Construction employment surged in the region (28% from -11%, while the rest of New Zealand remained weak at -11% from -15%).

For further information, please contact:
Shamubeel Eaqub
Principal Economist
DDI (04) 470 1810
Main (04) 472 1880
Mobile 021 573 218
Email: shamubeel.eaqub@nzier.org.nz

Background
The New Zealand Institute of Economic Research has conducted its Quarterly Survey of Business Opinion since 1961. It is New Zealand’s longest-running business opinion survey. Each quarter we ask around 3500 firms about whether business conditions will deteriorate, stay the same, or improve. The responses yield information about business trends much faster than official statistics and act as valuable leading indicators about the future state of the New Zealand economy. Long term series derived from the survey are held at the NZIER and are available to NZIER members via our website at www.nzier.org.nz.