The economy at a glance: April – June 2009
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While the general economy continues to contract, both within New Zealand and globally, there is increasing optimism among forecasters that New Zealand is approaching a recovery. Forecasts from the Reserve Bank, Treasury and other agencies have been revised up since the last quarter, with some commentators suggesting New Zealand’s economy has started to recover or will start recovering in the next few months.
There continues to be a mixed story in the building and construction sector. There are some encouraging signs of recovery: house prices were flat in the year to July 2009, the number of house sales has increased and houses are selling more quickly. Net annual immigration figures also remain strong, at almost 15,000 in the July 2009 year which will increase demand for housing.
However, the immediate outlook remains challenging: the future state of the housing market continues to depend on consumer confidence and access to credit.
Economy continues to slow, recovery forecast to begin next year
- New Zealand experienced a fifth consecutive quarter of contraction in economic activity when GDP fell by 1.0 percent in the March 2009 quarter .
- Construction industry activity (value added) fell by 8.9 percent in real terms in the year to the March 2009 quarter , compared with a 4.4 percent increase in the year to the March 2008 quarter.
- Real investment decreased by 8.6 percent in the year to March 2009, a better result than the 9.2 percent decrease the Reserve bank forecast in the June 2009 Monetary Policy Statement.
- The Reserve Bank also revised is future investment forecasts up slightly. In the September 2009 Monetary Policy Statement, they predicted that in the year to March 2010, real investment will fall by 10.0 percent, compared to 10.6 percent in the June 2009 Monetary Policy Statement. In the September 2009 Monetary Policy Statement, they also predicted that in the year to March 2010 real residential investment would fall by 14.3 percent, real business investment by 12.2 percent, and real government sector investment will increase by 16.0 percent.
- Forecasts are for the economy to contract in the March 2010 year, but for growth to be positive in subsequent years.
- There was net inward migration of 14,488 people in the year to July 2009, well above the 10,000 on which housing demand forecasts were based.
More people employed in construction but for fewer hours than for the same quarter of 2008
- The Household Labour Force Survey estimates that 182,800 people were employed in the construction industry in the June 2009 quarter. This is 0.9 percent higher than the June 2008 quarter.
- The Quarterly Employment Survey showed that the number of paid hours in the construction industry fell 8.5 percent to 3.9 million hours for the June 2009 quarter compared with the same quarter in 2008.
- The prospects for future employment in the sector will depend on whether construction activity continues to pick up. This in turn depends on the availability of credit to construction firms, which may in turn depend on ability to win contracts or subcontracts for larger projects and on the ability of land developers to obtain credit.
Rent and house price inflation continues to fall
- Inflation in the housing sector has dropped to 2.8 percent in the year to June 2009 quarter, lower than the 5.0 percent in the year to June 2008 quarter.
- Inflation for home ownership (measured by the new housing component of the Consumers Price Index) was 1.3 percent in the year to June 2009 quarter, falling from 5.2 percent in the year to June 2008 quarter.
- Actual rents increased by 1.7 percent in the year to June 2009 quarter, compared with 3.1 percent in the year to June 2008 quarter.