New Zealand Probably Avoided a Recession in 2010 on Confidence, Building

New Zealand likely avoided a recession last year due to a recovery in business confidence led by exports, consumer spending and construction, economists say.

A net 8 percent of companies surveyed expect the economy will improve over the next six months, up from 6 percent in the third quarter, the New Zealand Institute of Economic Research said today in Wellington. Home-building approvals rose 8.8 percent to a four-month high of 1,268 in November, Statistics New Zealand said in a separate report.

Rising confidence and construction add to signs the economy expanded in the final three months of the year, averting a recession after gross domestic product unexpectedly shrank 0.2 percent in the third quarter, partly because of damage from a September earthquake. Central bank Governor Alan Bollard may delay raising interest rates until the third quarter as he gathers more signs the nation’s recovery is sustainable.

“The improved activity measure should help to ease fears that the economy fell back into recession,” said Philip Borkin, economist in Auckland at Goldman Sachs & Partners New Zealand Ltd. “There appears to be little evidence of inflation getting worrisome. We believe the Reserve Bank can hold off resuming its tightening cycle until September.”

Eight of 12 economists forecast Bollard will keep the official cash rate at 3 percent until at least April, according to a Bloomberg survey on Dec. 10. None expect an increase at his review on Jan. 27.

Sales Outlook

A net 4 percent of 814 companies surveyed last month said trading improved in the three months ended Dec. 31, the privately owned institute said today. The net figure, which isn’t adjusted for seasonal patterns, is calculated by subtracting the proportion of pessimists from optimists.

A net 16 percent expected a drop in sales in the previous survey. The improvement is consistent with the economy expanding about 0.6 percent in the fourth quarter, Shamubeel Eaqub, principal economist at the institute, told reporters today.

“The fourth quarter seems to have rebounded but is still consistent with sub-trend growth,” he said. “At least we are not going backwards.”

New Zealand’s Earthquake Commission has paid out NZ$605 million ($462 million) in claims made after a magnitude 7 earthquake rocked Canterbury province on Sept. 4. The state- owned insurer estimates total costs may be as much as NZ$3.5 billion and rebuilding could take three years.

Trading fell sharply in Canterbury in the fourth quarter, while the rest of the country improved, today’s report showed. Still, employment in the construction industry surged in the region in anticipation of rebuilding, the institute said.

Home Building

In November, home-building approvals were buoyed by a surge in apartment approvals, the statistics agency said.

Economists prefer figures excluding apartments because they are less volatile. There were 226 approvals for apartments in the month, up from 24 in October. That included 154 approvals associated with retirement communities, the agency said.

Excluding apartments, approvals fell a fifth month, dropping 2.6 percent.

Rebuilding after the Canterbury earthquake is expected to buoy construction this year, said Sharon Zollner, economist at ANZ National Bank Ltd. in Wellington.

In addition, “improving household income growth, ongoing population growth and a gradually recovering housing market are likely to pave the way for a more respectable year ahead” for the construction industry, she said.

Commodity Prices

The outlook for exports has been buoyed by record-high prices for New Zealand commodities such as milk powder and lumber amid demand from China, the nation’s second-largest market. Exports rose 7.5 percent in the year ended Nov. 30 from the year-earlier period, Statistics New Zealand said yesterday.

Last month, Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, raised its forecast payment to New Zealand milk suppliers by 4.5 percent, citing higher international prices.

Expectations for first-quarter sales are improving, according to the institute’s survey. More firms expect trading will increase in the next three months and a net 5 percent expect profits will fall, down from 14 percent in the previous survey.

“While the growth implications of the rebound in business sentiment are better, they are hardly signaling boom times ahead,” said Robin Clements, chief New Zealand economist at UBS AG in Christchurch.

Warehouse Group Ltd., New Zealand’s largest discount retailer, last week forecast a decline in first-half profit after sales in the two months ended Jan. 2 fell 2.7 percent from a year earlier.

“Retail sales in general have been very soft over this key seasonal trading period,” Chief Executive Officer Ian Morrice said in a statement on Jan. 5. “Consumers clearly remain even more focused than we predicted on strengthening household balance sheets.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

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