12 Jun 2012

Case for rate cut not strong - economist

7:42 am on 12 June 2012

The euro zone debt crisis and slowing global growth are worrying households and businesses with confidence plummeting to a 15-month low.

The BNZ's latest business confidence survey found a net 5% of respondents expect the economy to be in worse shape in a year's time.

That's a turnaround from May when a net 22% expected better economic times ahead.

BNZ chief economist Tony Alexander says Europe's debt woes and slowing global growth have undoubtedly sapped confidence, while falling commodity prices have also prompted farmers to be more cautious about spending.

And even though Spain's debt-ridden banks have been thrown a lifeline, Mr Alexander says Europe's problems are not over.

"People do need to be relatively concerned about what's happening overseas because we've got the new Greek elections this weekend, and that could produce a government which would reject their bailout austerity measures, and that could lead to Greece leaving the euro and nobody has any idea what level of disturbance that would cause."

Mr Alexander says relatively weak data coming out of China and three poor labour market reports from the US in a row show the rate of growth in the world economy is slowing.

However, he says, despite global ructions there is not a strong case for the Reserve Bank to cut interest rates this week.