Growing fear of year-long recession
The likelihood of New Zealand suffering a year-long recession is growing, according to market prediction company iPredict.
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If New Zealand does have a double-dip recession it is likely to be a lengthy one, according to the latest weekly update from prediction market iPredict.
The market indicates a 53% probability that Statistics New Zealand will report on March 24 that New Zealand was in a double-dip recession in the December 2010 quarter (down from 60% last week).
The probability the recession will extend into the March 2011 quarter has dropped slightly from 58% last week to 55% this week but the probability it will extend into the June 2011 quarter has risen markedly from 39% to 45%.
The likelihood the economy will be in recession in the September 2011 quarter has fallen from 18% to 17% over the last week, while the probability it will be in recession in the December 2011 quarter is steady at 14%.
Inflation expectations have risen marginally over the last week. Annual inflation is expected to be 4.5% for the March quarter and 5.1% for the June 2011 quarter, compared with 4.5% and 5.0% last week.
Unleaded petrol prices are now expected to exceed $2.30 a litre this year. The probability it will exceed $2.20 per litre this year has increased from 77% last week to 93% this week, while the probability it will exceed $2.30 a litre has now reached 68% compared with just 43% last week.
Despite this, there are growing expectations that interest rates will fall.
The market now indicates a 90% probability the Reserve Bank will lower the official cash rate (OCR) from its current 3.00% on Thursday, up from 70% last week, and up from less than 1% before the Christchurch earthquake.
The bank is then expected to hold the OCR on April 28 (89% probability compared with 86% last week) and June 9 (93% probability compared with 84% last week).
Expectations are also growing that a new left-wing party will be launched.
The probability of such a party involving at least two of Hone Harawira, Matt McCarten and Sue Bradford has now reached 53%, up from 47% last week and 34% the week before.
Niko Kloeten
Tue, 08 Mar 2011
Tue, 08 Mar 2011
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
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Growing fear of year-long recession
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