Stalled economic recovery from renewed weakness in manufacturing, construction, and investment intentions is being reported by the New Zealand Institute of Economic Research, for the quarter to June.
A combination of easing business confidence, continued inflation pressure and subdued profitability appear to point to a stalling in New Zealand's economic recovery, according to economists.
In turn, the Reserve Bank is being urged to be cautious about raising its interest-driving official cash rate, in order "not to stifle already anaemic domestic demand and derail a fragile export recovery", NZIER's principal economist, Shamubeel Eaqub, said yesterday.
"Signs of a stalling recovery are worrying. At this stage of the cycle we would normally see the economy recovering strongly".
Last month, the Reserve Bank raised the official cash rate from a record low of 2.5% to 2.75% with most analysts predicting it will be raised a further 25 points later this month.
"Slowing momentum of global economic growth and financial market dislocation add risks to the economic outlook," Mr Eaqub said in a statement.
From the NZIER survey, he said firms were less optimistic, as the economy had "yet again failed to deliver" on expectations of a strong recovery, with seasonally-adjusted business confidence easing from 36% to 28%.
"The recovery may be stalling. The outlook is still fragile," Mr Eaqub said.
ASB economist Christina Leung said the NZIER data revealed slightly softer economic growth, a backdrop of continued inflation pressures in the economy and continuing subdued profitability.
"Both headline business confidence and firms' own assessment of trading conditions dipped in the second quarter [to June]," Ms Leung said in a statement.
However, she said the current level of firms' assessment of own activity still suggested reasonably healthy economic growth during 2010.
"With the recovery remaining on track and inflation pressure still in place in the New Zealand economy, we expect the Reserve Bank will continue to steadily remove monetary policy stimulus over the coming year," she said.
Mr Eaqub said labour market indicators continued to improve, with job losses easing, and labour was becoming harder to find.
"However, hiring intentions are not picking up. The lagged effects of labour market weakness will dampen wages for at least another year," he said.
