Long double-dip recession predicted after quake
New Zealand could be in for a long double-dip recession and rapidly rising inflation, according to predictions market iPredict.
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Last week’s devastating earthquake in Christchurch has made investors in predictions market iPredict decidedly more gloomy in their economic outlook.
The market now indicates a 60% probability Statistics New Zealand will report that New Zealand was in a double-dip recession in the December 2010 quarter, up from 52% last week and 48% the week before.
And there is now a 58% probability the recession will extend into the March 2011 quarter, up from 40% immediately following the Christchurch earthquake last week and 16% the week prior to the earthquake.
The market also indicates a 39% chance the recession will extend into the June 2011 quarter (making it a year long), up from 18% last week and 6% the week before.
Inflation expectations have also risen. Annual inflation is expected to be 4.5% for the March quarter and 5.0% for the June 2011 quarter, up from 4.9% last week.
The probability unleaded petrol will exceed $2.20 per litre in 2011 has increased from 63% last week to 77% this week, while the probability it will exceed $2.30 per litre has now reached 43% compared with just 30% immediately following the earthquake.
Despite this, there are growing expectations that interest rates will fall.
The market now indicates a 70% likelihood the Reserve Bank will lower the Official Cash Rate (OCR) from its current 3.00% on March 10, up from 11% immediately following the earthquake last week, and up from less than 1% prior to the earthquake.
The probability the bank will hold the OCR on March 10 is now down to 28% compared with 80% immediately following the earthquake and 98% prior to the earthquake.
Even though the market is tipping a double-dip recession lasting as many as four quarters, Prime Minister John Key is expected to keep his job after the election, with National on 46.5% support needing only one coalition partner.
Labour is expected to get 31.9% of the party vote, the Greens 7.0%, Act 4.0%, New Zealand First 3.2%, United Future 2.1% and the Maori Party 2.0%.
There is an 89% probability newly independent MP Hone Harawira will win Te Tai Tokerau as an independent or for a party other than the Maori Party, up from 72% last week and 48% the week before.
Niko Kloeten
Tue, 01 Mar 2011
Tue, 01 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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Long double-dip recession predicted after quake
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