New Zealand: Finally emerging
New Zealand is finally emerging from its five-quarter long recession, the beneficiary of strong domestic and global policy stimulus. Recent indicators, notably improving business production expectations and retail sales, suggest that the third quarter is on track to register modest positive growth. But the recovery could be hampered by the overhang of high private sector indebtedness, ongoing credit contraction, the currency’s recent strength and rising unemployment. Unemployment is rising markedly and, as a lagging indicator, will continue to do so. This may hold down incomes and, along with the need to unwind the burden of household debt, raise the propensity to save.
Given weak and fragile private demand, it is appropriate that monetary and fiscal policies remain expansionary for the time being. However, if the recovery takes hold as projected, stimulus should start to be withdrawn by mid-2010 in order to reinforce balance-sheet restructuring and, in conjunction with structural reforms, to steer activity toward tradeables production rather than housing investment as the main generator of income and wealth.
©OECD Observer 2010