New Zealand, recovery on the horizon

Private consumption improved slightly in Q2 of 2009, expanding by 0.4% compared to the previous quarter, thanks largely to rising home prices and a slight recovery in household balance sheets (due to interest rate cuts and deleveraging). There are expectations for continued growth into 2010, provided that the positive factors remain in place. There are also signs of an improvement in the retail industry. Excluding vehicle related categories, core retail sales increased 1.2% in October, led by a 6.4% rise in sales of clothing and soft goods. Consistent with the effects of a rising housing market, there were solid increases in sales of household durables such as hardware (up 7.2%), furniture and floor coverings (up 3.1%), with sales by department stores up 2.4%.

Both corporate and personal insolvencies have risen year-on-year. The payment risk profile of thousands firms have been downgraded. Although this has occurred across all industry sectors, younger businesses, construction related industries and the services sector have seen the largest number of downgrades and appear the most vulnerable to cash flow and payment problems. The signs are that Q2 2009 growth marked the end of the recession. The IMF forecasts real GDP to shrink by 2.2% in 2009 but to rebound by 2.2% in 2010, based on the recovery of the global economy, the recent strength in domestic housing prices and a marginally stronger retail environment.