Call it a double dip: new recession may be upon us

Call it a double dip: a new recession may now be upon us...

A construction industry leader is calling for an immediate reduction in the official cash rate to restore consumer confidence, support the housing sector and protect jobs.

“We need an emergency reduction in the OCR of at least 0.25%,” says Jennian Homes director Richard Carver.

Speaking ahead of a Reserve Bank announcement due tomorrow, he says the prospect of New Zealand’s economy being in recession again by the end of the 2010 calendar year is a real possibility. “Many parts of New Zealand are effectively back in recession now.”

The latest NZIER Quarterly Survey of Business Opinion shows the economy contracted in the September quarter after stalling in June. “GDP growth may be negative in the December quarter, too,” predicts Carver. “The Reserve Bank must take urgent and decisive action to halt this downwards spiral, by reducing the OCR.”

Carver bases his call on low inflation and a lack of consumer confidence. “Inflation is virtually non-existent. There’s no demand. People just aren’t buying. I’ve never seen New Zealand this quiet. New home builders are suffering and the economy is stalling. It needs a confidence boost now.”

Noting falling activity levels in grassroots New Zealand, Carver says the Reserve Bank is not reading the signals correctly. “There is a lot of pain in the domestic economy.”

He’s placing the blame firmly at the feet of the Reserve Bank. “The bank raised the OCR twice earlier in 2010, making flawed assumptions about GDP growth and inflation – partly pinning its hopes for economic recovery on the housing market. But the housing market is falling and the latest outlook for 2011 is for lower levels of activity than 2010 in existing house sales and new residential construction.

“Residential construction activity is falling, and will fall further next year, too. Building consent figures were down last month. The September figures, due out this Friday, will probably be down again.”

And there’s no improvement in sight. “Rising household costs will keep consent numbers in check for a while yet. When you take away the government’s price increases, GST, ACC etc, there is little inflationary pressure.

“The next move in the OCR needs to be a reduction.”

ENDS

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