Saturday, March 15, 2008

Storm clouds gather over New Zealand

The news today that the fifth-largest investment bank in the United States, Bear Stearns, has been given emergency funding, to save it from collapse, only added to the jitters in New Zealand, where the Bank of New Zealand today said it was "increasingly convinced that the . . . economy is heading for recession".

The bank's warning came as the price of oil soared to yet another record ($US111 a barrel), as gold passed $1000 an ounce for the first time, and as the New Zealand sharemarket fell more than 2 percent.

BNZ economist Stephen Toplis said New Zealand businesses and consumers were being pummelled by the effects of the global credit crisis, falling house prices, record fuel costs, a strong kiwi dollar, high interest rates and the effects of the drought.

Mr Toplis warned that indicators such as the rapidly slowing housing market were just "precursors", and that the impact of the credit crisis was only beginning to be felt by the wider economy.

Households were struggling under the weight of higher mortgage repayments and businesses were faced with the prospect of rising debt-servicing costs as banks paid more to borrow money overseas, he said.

"Household disposable incomes will be further substantially eroded by the rising costs of food, electricity and rates."

Meanwhile, transport companies and supermarkets said the record fuel costs would have to be passed on to consumers.

"The fact of the matter is that the New Zealand economy is now very poorly, and may well stay that way for some time to come," Mr Toplis said.

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