The visible hand in economics

June 2008 GDP preview: Recession!

Posted on: September 23, 2008

The June quarter seems so long ago now, but it will not be until Friday that we find out whether the economy managed to have a technical recession over the first half of the year – following the 0.3% fall in March.

The RBNZ suspects that there was a 0.2% decline in economic activity in the June quarter (seasonally adjusted). When they released this figure this was on the HIGH side of market expectations – and since then market expectations have deteriorated further.

Remember, we can think of GDP this way:

GDP = Consumption (C) + Investment(I) + Government Spending(G) + Exports(E) – Imports(Im).

The terrible retail quarter, combined with a rapid lift in the cost of producing power ensure that growth in (C) will be negative.

Growth in (E)-(Im) will be negative as export volumes were hit further by drought, while import volumes are known to have been elevated (with capital and plant equipment behind a lot of it).

Growth in (I) looks shady. Plant and capital equipment and inventories should see an increase, however non-residential building volumes was starting to look dodgy and residential building had begun what appears to be a big decline. Finally, we can’t expect any magic from the G category either 😉

The range I’d keep in eye on would be -0.3% to -0.7%. Anything more negative than -0.7% and there will be some concern, anything less negative than -0.3% and the market will be happily surprised.

Also if you are interested in the recession call, keep an eye on March – if March is revised positive then we haven’t had a “technical recession” in that sense.

Advertisements

2 Responses to "June 2008 GDP preview: Recession!"

June 2008 GDP preview: Recession!…

The June quarter seems so long ago now, but it will not be until Friday that we find out whether the economy managed to have a technical recession over the first half of the year – following the 0.3% fall in March. ……

[…] If you liked this post then you may like this one […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Add to Google
%d bloggers like this: