New Zealand Treasury warns economy may have slipped into recession

New Zealand's Treasury department joined economists Tuesday in warning that the country's economy may have slipped into recession, after recording negative growth in the three months ended March 31.

"It is possible that the economy has experienced a technical recession in the first half of 2008," the department said in its June monthly report.

In New Zealand, the economy is officially considered to be in recession if two successive quarters of negative growth are recorded.

"The past month has seen the release of data that confirm a sharp slowing of growth in early 2008 and point to further weakness in the June 2008 quarter," Treasury noted.

A drought and weak domestic demand saw the economy contract 0.3 percent in the first quarter, the first quarterly decline since 2005.

Westpac Bank chief economist Brendan O'Donovan said there was a 90 percent probability a recession had begun.

"The economy has been hit by four shocks simultaneously," O'Donovan said, listing fuel prices, credit market dislocation, a sharp housing market decline and the drought.

ASB Bank chief economist Anthony Byett went further.

"It looks as though we're in recession," Byett told National Radio.

Treasury has cut its economic growth forecast for the year to March 2009 by half a percentage point to 1 percent.

It said the economy could be expected to recover in the second half of the year, aided by high dairy prices boosting farm incomes and personal tax cuts due to come into effect from Oct. 1.

Adding to the gloom, a major indicator of business sentiment Tuesday pointed to two more quarters of economic decline, following the 0.3 percent fall in gross domestic product in the March quarter.

The June Quarterly Survey of Business Opinion by the independent New Zealand Institute of Economic Research group found business was at its most negative since the recession of mid-1998.

"Indicators of domestic trading activity ... suggest economic activity declined further in the June quarter and is likely to decline again in the September quarter which will make it three quarters of negative economic growth in a row," it said.

The survey showed a net 54 percent of firms expect the general business situation to deteriorate in the next six months.