25 Mar 2011

Economic shrinkage expected

5:44 am on 25 March 2011

New Zealand narrowly avoided a recession in the December quarter, but Deutsche Bank chief economist Darren Gibbs expects economic activity will shrink in the wake of the Christchurch earthquake.

Gross Domestic Product rose 0.2% in the final three months of last year, following a fall of 0.2% in the September quarter.

The improvement was driven by a rebound in manufacturing activity, real estate, forestry and logging, although that was partially offset by a decline in activity in the retail, accommodation and restaurant sectors.

Mr Gibbs says the result confirms the economy essentially moved sideways over the final three quarters of last year.

Mr Gibbs expects GDP in the March quarter to contract modestly due to disruption to business activity in Christchurch.

But, like most economists, he's optimistic that modest growth will resume in the second quarter and then strengthen in the second half of this year.