By Deanna Harris
Around 20,000 construction jobs are at risk with the non-residential sector at the edge of a collapse according to NZIER’s principal economist.
“The recovery is slowing. There is sufficient momentum and stimulus in the economy to avoid a repeat recession. But the economy will be soft in the next six months,” says NZIER’s Principal Economist Shamubeel Eaqub.
“Households remain cautious with spending, net migration will slow further, and non-residential construction work is now running dry.
“Work usually lags consents by a year – a year ago the level of consented floor area fell by a third. This alone may put around 20,000 construction sector jobs at risk."
NZIER Quarterly Predictions for September 2010 is being released tomorrow with a less optimistic outlook than other forecasters.
Mr Eaqub warns retailers it will feel like a recession for some time.
“Retailers should plan for a disappointing pre-GST hike spend-up and Christmas shopping. Households remain cautious and are making do with less than before the recession. A slow recovery in jobs and wages, and debt repayment will dampen spending for some time. Impending food price increases and other one-off costs will offset the personal tax cuts for the lower half of income earners,” says Mr Eaqub.
He forecasts economic growth to fall by 1 percent in 2011.
“We expect economic growth of 2.2 percent in 2010 calendar year. But it will slow to 1.2 percent in 2011, before rebounding to 2.9 percent in 2012. This reflects a weak patch in late 2010 and early 2011. Our view reflects a cautious attitude from households and businesses, slowing net migration, and an impending slump in non-residential construction. Other forecasters on average expect growth of 2.6 percent, 3.2 percent and 2.7 percent in 2010, 2011 and 2012 respectively.”
Businesses are not yet ready to pay higher wages or invest in new capital and employees. Profit margins are skinny and business borrowing continues to contract – indicating that a very low OCR has not yet encouraged investment in the economy.
He says they expect the OCR to remain at 3 percent until March 2011.
“The Reserve Bank of New Zealand (RBNZ) will pause in raising interest rates given near term growth risks and distant inflationary pressures. Interest rates for households and businesses are much higher than the OCR or wholesale interest rates.
“This is strangling the recovery and there is little growth in borrowing. We expect the RBNZ to keep the OCR at 3 percent until March 2011, and then gradually increase to 5.5 percent by early 2012. Rates may rise earlier in 2011 if the recovery strengthens.”
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