Economy will pick up: Treasury

Reuters | Monday, 08 September 2008

The New Zealand economy faces a third quarter of contraction but will resume growing by the end of the year, Treasury said.

The Treasury reiterated comments made in July that the economy was likely in recession in the first half of the year, and said it could not rule out a contraction in the third quarter because of the housing market slowdown.

"We continue to expect growth to turn positive in the December quarter owing to the combined effects of tax cuts, recovery from the drought and the weakening NZ dollar," the Treasury said in its monthly economic indicators commentary.

The economy is expected to have shrunk by 0.3 percent in the second quarter, according to a Reuters poll, matching the fall in the first quarter. Official data is due September 26.

It said an expected significant fall in residential investment and subdued retail activity in July pointed to the likelihood of weak consumption and possibly a further small contraction in the third quarter.

The Treasury said it expected annual average growth of around 0.5 percent in the year through December 31.