BNZ worried about 'near-recession' as Key talks economy up   31 Aug 2015

BNZ grows worried about 'near-recession' as Key talks economy up

By Pattrick Smellie

Aug. 31 (BusinessDesk) - The Bank of New Zealand is increasingly concerned the economy is grinding to a halt following today's confirmation in the ANZ Bank Business Outlook survey of slumping business confidence.

"As each day passes, the likelihood of our alternative scenario, of an economy stumbling to near-recession, increases," said head of research Stephen Toplis in analysis released at much the same time as Prime Minister John Key was telling journalists it was important to "keep Chicken Licken at bay" and not talk the economy down.

However, Key's comments were undermined when it became apparent he had either misread or been wrongly briefed on the results of the ANZ survey, which showed a net 29 percent of businesses were pessimistic about the outlook for the economy, the lowest level of business confidence in six years, when New Zealand was starting to recover from the global financial crisis. Key had claimed that sentiment was still in positive territory.

However, that is only true of firms' view of their own circumstances, where a net 12 percent of firms are positive, down seven points from last month, well below their long term average of a net 27 percent optimistic, and also a six-year low point.

ANZ described the results as indicating the economy was "approaching 'stall speed'."

BNZ has lowered its forecast for economic growth, now expecting it to bottom out at about 1.7 percent annual growth in mid-2016, but is concerned at the number of signs pointing to a weaker outcome than that.

"If the general tenor of the (ANZ) survey deteriorates any further, which seems entirely plausible, then our expectations will start to look decidedly optimistic," said Toplis.

"The agriculture sector (read dairy) is in a state of depression but every other sector surveyed now also has below-average expectations for activity growth. The only sector within cooee of optimism was services, which is likely to largely reflect the booming state of the housing market and those who can benefit from such."

At his post-Cabinet press conference today, Key claimed the outlook was "still net positive" before reporters pointed out that sentiment was negative for a second month, and had declined for five straight months.

"We run the risk of talking the economy down," Key said, pointing to the 'own activity' indicator as being "much more optimistic".

"Everyone understands we need to keep Chicken Licken at bay," he said, referring to the scare-mongering bird in a children's story who predicts the sky will fall. "Yes, we will grow slightly slower than last year, but we're still expecting 2 to 2.5 percent," he said.

While unemployment might rise, it was important to remember that New Zealand had one of the highest rates of people employed in the rich countries' club, the OECD, and that participation rates - a measure of those both working or looking for work - was also amongst the highest in the developed world, Key said.

(BusinessDesk)

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