31 May The recession: Gloom by numbers
By GARRY SHEERAN – Sunday Star Times
Budget figures and forecasts rate this recession the longest and deepest in New Zealand’s recent history. Even so, economists are not calling it, as a one-in-60 year event, comparable to the Great Depression, as is happening in countries such as the United States and the UK. More like a bit of what we’ve experienced in the last few decades, although biting deeper.
In its December forecasts, Treasury was predicting real economic growth of 0.3% and 0.8% in the year to March 2009 and March 2010 respectively. In the Budget, it says instead that gross domestic product will decline by -0.9% and -1.7% for those periods.
On the downside, it could slip even further, to -1.0% and -2.8% respectively. That means the recession will most likely continue through seven consecutive quarterly periods of negative GDP. Treasury records show that a recession in the mid-1970s also lasted seven consecutive quarters, although data was not immediately available to show how deep that recession was.
But the fall in GDP from a peak in the December quarter of 2007 to the December quarter of 2009 is likely to be 3.4%, according to figures extrapolated from the Budget. That is a greater fall than that recorded in the recessions of 1997-98 (-1.6%), 1990-91 (-3.1%) or 1982-83 (-3.2%). Each of those recessions lasted only two or three consecutive quarters of negative GDP.
Deutsche Bank chief economist Darren Gibbs said the nature of the current recession was thrown into sharpest relief by comparison with the 1990-91 recession, which lasted only two months in terms of negative GDP growth. But the declines were big: -2.6% in March 1991 and -0.7% in the June quarter the same year.
Then from September the economy ran away “like a bull out of a gate”, with 10 consecutive quarters of GDP growth. Gibbs said recessions tended to be short and sharp, but 2008/09 had been different. New Zealand slid slowly into recession on the back of the 2008 drought, which took 0.5% off GDP.
The Budget predicts the 2009 March quarter will be similar to the horror December quarter number, and the June and September quarters will be negative before a return to positive territory in the December 2009 quarter.
But that doesn’t mean ordinary New Zealanders will not still be feeling the very real pinch of recessionary times. The Budget is predicting unemployment to peak at 8% in September 2010, for example. At that time, if forecasts are correct, quarterly GDP will start to look healthy again.