New Zealand may already be in recession, according to the Bank of New Zealand.
While the focus has been on whether the United States economy was in recession, BNZ senior economist Stephen Toplis said he was becoming increasingly convinced the New Zealand economy was heading for recession.
‘‘In fact, it may already be there. Alas, we have become victims of an almost perfect storm which has seen the economy afflicted by a combination of a global credit crisis, rising commodity prices eroding personal disposable incomes, a weakening international real economy outlook, a housing market slump, very tight monetary conditions, and a drought.''
The probability of the economy achieving two consecutive quarters of negative growth was greater than 50%, with the likely candidates being the third and fourth quarters of this year, Mr Toplis said.
Apart from using the word ‘‘recession'', the BNZ view for the calendar year had not substantially changed.
Growth on an average basis was unchanged at 1.4%, but with a slightly different quarterly profile.
The change came in the expectation that this year's very low period of growth was sustained through 2009, despite the expected personal tax cuts due to hit during that year, Mr Toplis said.
‘‘But this is all semantics. The fact of the matter is that the New Zealand economy is now very poorly and may well stay that way for some time to come.''
The global credit crisis was worming its way into the New Zealand economy and exacerbating trends which were already looking fairly disturbing, he said.
The paucity of available credit would put continued pressure on interest rates, regardless of whether the Reserve Bank lowered the official cash rate from 8.25%.
‘‘For householders struggling with already rising mortgage interest rates, this is a real curse. It's no better for businesses. They, too, face the prospect of rising debt servicing bills as wholesale rates rise.''
Businesses would also be affected by rising risk premiums on their funding costs as lenders sought compensation for the heightened risk associated with a deteriorating economy, Mr Toplis said.
It was important to recognise that the impact of the credit crunch was only just beginning to be felt by the wider economy.
The corrections seen in asset prices and the real economy were, so far, in advance of any adjustment arising from the global credit shock.
Real estate data last week showed the third consecutive monthly decline in house prices, and that was only the beginning, he said.
Prospective purchasers appeared to be leaving the market in the expectation of future price falls. That would become self-fulfilling.
‘‘We now believe house price deflation will hit double-digit levels before all this is over.''
Recession was an ugly word and there would be some people who would claim the BNZ had gone off the deep end by forecasting it, Mr Toplis said.
He accepted the bank was only talking two quarters of -0.1% growth, within a margin of error forecast.
However, what was more important was that things ‘‘feel plain uncomfortable''.
To deny the mounting evidence of a softening in both the published and anecdotal data would be negligent, he said.
‘‘We are far more interested in alerting folk to the potential risks to their businesses and investments than playing a safe game.''
