24 Dec 2008

GDP figures show deepening recession

6:11 am on 24 December 2008

The global downturn has tightened its grip on New Zealand. The recession is deepening as households and businesses reduce their spending.

Business New Zealand chief executive Phil O'Reilly says the country is in for some long-term pain. And Westpac's chief economist, Brendan O'Donovan, expects as many as 50,000 jobs to be lost in the first half of next year.

Gross domestic product or GDP - a broad measure of the health of the economy - shrank 0.4% in the three months to September. It is the third quarter of negative growth in a row.

Both household spending and business investment continued to fall, according to Statistics New Zealand.

Exports declined 2.6% in the latest quarter, manufacturing dropped by about the same, and companies invested 15.5% less in plant and machinery.

Although economic activity for the year grew 1.7%, Radio New Zealand's business editor says that figure masks the contraction in economic activity for the third successive quarter.

Goldman Sachs JB Were senior economist Shamubeel Eaqub says the figure is worse than it appears and the real cost of the recession will be felt next year. He expects GDP to continue to contract through to the third quarter of next year.

However, Mr O'Donovan says the economic situation should improve about six months from now, when massive foreign government stimulus packages start to take effect.