By Paul McBeth
The build-up of inventories through the latter part of 2011 has opened up one in four or five chance of a contraction in the early part of this year as firms unwind massive stockpiling.
New Zealand Institute of Economic Research principal economist Shamubeel Eaqub told reporters in Wellington there is a 20 per cent to 25 per cent chance of a quarterly contraction in the economy this year as firms cope with a "massive accumulation" in their inventories during the September quarter.
"Whenever we've had big increase in inventory, in the next one or two quarters it unwinds very, very rapidly," Mr Eaqub said.
"We're still not talking about outright contraction in the economy, but we're talking about a very slow pace of economic activity."
New Zealand's gross domestic product rose 0.8 per cent in the three months ended September 30, accelerating from a pace of 0.1 per cent, though at the time Mr Eaqub said the inventory build-up was "humungous" and will depress future growth.
Today he said the build-up in inventories across "virtually every part of the economy" was the biggest concern in the December quarterly survey of business opinion.
"We're starting to see inventory build-up that feels like it's unexpected and unanticipated," he said.
That was keeping a lid on firms' activity, with today's survey showing a slowdown to a seasonally adjusted negative 4 per cent from a plus 1 per cent in the September survey.
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