SNZ stated that the economy shrank by 0.3% in the first quarter of 2008 and that the outlook is for a further decline in the second quarter, which when confirmed will mean that the country is officially in a recession.
To add further to the gloom SNZ stated that New Zealand posted a $196 million trade deficit in May instead of the forecast surplus. Within the GDP figures primary industries recorded their largest quarterly decline due to the high exchange rate which is further compounded by the drought. A 5.2% fall in construction and a 1.2% fall in manufacturing lead to a 1.9% decline in goods producing industries the largest fall in such industries since June 2000.
Indeed last year the government and the Reserve Bank were all saying that the economy was in for a soft landing. Now there is a whiff of panic in the air as the economy has declined more rapidly than they expected and the NZX has dropped to it lowest level for 3 years and continues to slide. In fact the NZX has declined by 23.5% in the last twelve months. Certainly foreign investors are pulling their money out of New Zealand as the economy worsens here and globally.
The Reserve Bank estimates that the inflation rate will go up to around 5%, and that unemployment will rise by 70,000 in the coming year. The high Official Cash Rate (OCR) of 8.25% set by the Reserve Bank has been maintained to 'gently let down' the housing market and bring inflation under control. Apparently the Reserve Bank thinks that crippling mortgage rates of around 9-10% interest is a price worth paying for carrying out such a crude policy. If by 'gently' they mean the collapse of the housing market then they have succeeded. It is predicted that house prices will drop by a whopping 22%. Undoubtedly, this is a conservative figure and there is an expectation of even greater reductions in house prices, which will leave people who bought in the past period in serious negative equity, as well as an increase in mortgagee sales as people cannot meet their repayments and the banks foreclose. The bubble has certainly burst as far as the housing market is concerned. This is reflected in the number of real estate agents who have been laid off whose numbers have gone down by 9%. It is anticipated that a further 10% of real estate agents will be out of work in the coming twelve months..
The high OCR linked to the global credit crunch is having serious negative effect on both the commercial and residential property markets. This is clearly expressed through the collapse of 24 finance companies. Property developers no longer have access to cheap credit and they are unable to pay their debts from these second tier lenders as the market demand for property has evaporated. It is estimated that over $2 billion of investors money has literally disappeared overnight.
Now the 'witch doctors' at the Reserve Bank, along with the Treasury suggest that the OCR is too high and is likely to come down in the Spring. However, a reduction in the OCR will mean that speculation on the currency that has driven the dollar to dizzy heights will stop as the currency is no longer an attractive proposition. Without doubt a declining dollar may give a temporary boost to exporters, but imports will become more expensive as will oil, causing more misery here.
Quite clearly the burden of the world economic downturn is being pushed on to the backs of workers. In fact it gets quite galling watching the television news telling us how to save money at the supermarket, cut back on power etc. The point is that a large number of workers cannot cope with the constant price hikes on essentials and are unable to make savings! Already we have a situation where people are turning to food banks to make ends meet. In the Wellington region there as been a 20% drop in the volume of traffic as people switch to public transport and use their cars less as the cost of petrol rockets. Fortunately for Wellingtonians they have a reasonable public transport system despite years of under investment in rolling stock, buses and trolley buses. Unfortunately in most of New Zealand, in particular the rural areas, there is no public transport or inadequate public transport and workers are struggling to make ends meet even more. Not surprisingly, consumer confidence is at its lowest since the early 1990's as discretionary spending dries up.
The recent national protest by the trucking companies over the governments increase in road user charges is an indication of the volatility developing in society. However, we have to understand that this was not a movement of the workers, as some have suggested but it was organised by the employers themselves. It would be interesting to see how positively the media and the employers would react to the truck drivers if they went on strike for better pay and conditions!
The Labour led government lags at least 20 to 25% behind in the polls, not even the tax cuts promised in the budget will save them as the government does not begin to answer the problems that workers face. The right wing Labour leadership actually believe that capitalism and the market can deliver the goods for workers, and are astonished when it doesn't. The pro capitalist policies of the right wing Labour government are found wanting in the crises of capitalism that is unfolding. How can such policy work when the capitalist crises and the unrelenting search for more and more profit completely undermines them. This makes the right wing Labour government part of the problem too as the right wing Labour government has no alternative to offer and make the workers pay for the ensuing capitalist crises. It is no wonder that workers are disillusioned with the government. The Labour government has served its purpose as far as the bourgeois are concerned and that is why they are putting their weight behind returning a National government this Spring.
volatile cocktail of recession and inflation is being mixed. Without
doubt at some point in the near future the workers will have to
defend themselves from real pay cuts, job losses as well as
unaffordable price hikes. Workers will draw the necessary conclusion
that the only way out is to fight. This will begin with the most
advanced layers of the working class and then percolate through the
rest of the working class. First of all the fight will take place in
the trade unions as workers fight to transform them into militant
trade unions. Eventually, at a later stage such a process will have
an impact in the Labour Party as it will be pushed to the left as
workers use it as a political vehicle to express their needs and in
the process rediscover its socialist roots.