22 Jun 2009

Figures likely to point to continuing contraction

9:57 am on 22 June 2009

Weak consumer spending and business investment are expected to result in a fifth successive quarter of economic contraction when Gross Domestic Product figures are released on Friday.

Economists expect Gross Domestic Product, a broad measure of the health of the economy, to have declined on average 0.8% in the first three months of the year.

Westpac bank chief economist Brendon O'Donovan says the recession has curbed consumer spending, while firms have slashed investment, offsetting small signs of a recovering housing market and higher exports, which have been lifted by dairy sales.

Mr O'Donovan says consumers are extraordinarily cautious and have pulled back on their spending.

He says there was a significant contraction in business activity during the current quarter, but he is predicting that from mid-2009 onwards growth will be flat for a quarter and then start to pick up.

He says swine flu has the potential to draw the recession out for another one or two quarters.

He says the high New Zealand dollar also calls into question a recovery. Its rise is the result of the international situation, rather than of any increase in local commodity prices.