Double-Dip Recession to Hit New Zealand Next?

Mother Nature doesn’t seem to be on New Zealand‘s side lately, does it? The country just barely recovered from the quake that rocked Canterbury in September, and now a more fatal earthquake rocked Christchurch. Although there were hardly any casualties during the Canterbury earthquake, the latter one resulted in a large death toll and left lasting damages on infrastructure.

Finance Minister Bill English seems to be drawing a parallel between the natural calamities and their growth prospects because he predicts that another economic disaster could strike New Zealand again. Their country is still making feeble attempts at bouncing back from last year’s recession, yet there’s the danger that it could slump once again.

Even though GDP had a nice five-quarter winning streak, growth for most of those periods was hardly impressive. Two out of the five quarters saw a measly 0.1% expansion while another quarter posted a slightly better 0.2% uptick – all dangerously close to a contraction! What’s worse is that their most recent GDP report, which was for the third quarter of 2010, posted an actual economic contraction of 0.2%.

“Yikes! One more quarter of negative growth would classify as a recession!”

Exactly.

Not only would another quarterly GDP contraction put New Zealand back in a technical recession, it would also mean that they’d be in a double-dip recession. *Gasp*

Finance Minister English seems to think that it’s possible that New Zealand double-dipped in the fourth quarter of last year. He cited that recovery hasn’t really been fly like a G6 and that their economy is still faced with plenty of challenges.

For one, the Canterbury earthquake most probably weighed down on production and spending over the past few months.

And just last week, we saw that the retail sales report for December printed a 1.1% decline, almost erasing the 1.2% uptick we saw in November. This may have come off as a surprise to some economic hotshots who expected a modest contraction of 0.3% in spending since consumers usually shop ’til they drop during the holiday season.

Looking ahead, things probably won’t be looking too rosy for awhile. According to ratings hotshot Moody’s, the recent earthquake will most likely send the New Zealand economy into another period of anemic growth. As I said, the latest earthquake came at a particularly poor time, as consumer spending has been showing weakness lately. Chances are that we could see spending continue to disappoint this quarter, as people will have to adjust to effects of the disaster in the short term.

In addition, the only thing that’s been propping up the economy has been the nice commodities rally. Remember that a huge chunk of New Zealand’s growth comes from exporting commodities that other nations use as raw materials.

Still, there are some concerns whether this will be enough. While trading sectors will benefit from high commodity prices, such sectors do not add as much to the labor market as compared to non-trading sectors. Thus, the effects of high commodity prices may not trickle down and boost the economy as much as one would hope.

With that in mind, I highly doubt that RBNZ Governor Alan Bollard and his minions will be raising rates this March. I suspect that central bankers will be waiting for the release of Q4 2010 GDP data before making any decisions.