macro economic update By David Marshall, Chief Financial Officer Views are consolidating that global recovery is underway. Australia avoided technical recession when data again surprised on the upside in the June quarter, with growth up 0.6% in the quarter and 0.6% over the past year. Following the 0.4% growth in Q1, it confirmed that Australia avoided a 'technical' recession in the past year, with only the December quarter 2008 recording negative growth. The New Zealand economy also appears to be on the improve, with the most recent quarterly GDP figures reporting the first positive growth in six quarters. The Bank of New Zealand's Head of BNZ Market Economics, Stephen Toplis, noted that the August National Bank Business Outlook for New Zealand produced an unequivocally buoyant future picture for the New Zealand economy. In short, he suggests that, not only is the recession fast nearing its end in New Zealand but that GDP growth will soon be back up to trend. GDP growth is forecast to be headed for around 2.75% and interestingly, the optimism was reasonably widespread with retailers the most optimistic since February 2007, manufacturers their happiest since May 2002 and the construction industry the most buoyant since March 2001. Both the services and agriculture sectors remain subdued when compared to their respective norms though even here confidence is nudging higher. From the United Kingdom, Economist, David Tinsley reports there was some modest upside news from the second release of Q2 UK GDP. The headline was that the fall in output, estimated in the first release at 0.8%, was revised to show a contraction of 0.7%. The source of the upward revision was in production, where the volume of output was revised to show a fall in Q2 of 0.7% compared to 0.8% in the earlier release. Output in the service sector remained unrevised, indicating it fell 0.6%. NAB indicates that some of the apparent distinction between the UK's poor growth performance in Q2 compared to Germany and France is illusory, being really just a function of the timing of fiscal support packages. Q2 may prove the last quarter of the recession in the UK, for now at least. With the stock-cycle turning and net trade boosting growth, some further narrowing in the decline in consumer spending in Q3 will be enough to see a modest expansion in overall activity. Momentum could then build into Q4. In Asia, attention has focused in China on the possible impacts of the surge in liquidity in the Chinese economy consequent on the significant increase in the growth in the rate of credit. NAB indicates that China’s export sales remain very weak, however despite this, the growth rate of industrial production has doubled, reflecting the increase in domestic spending consequent on both credit growth and budgetary measures. The bank expects China’s growth to continue, forecasting GDP growth of 9% in 2010. This can be expected to have positive consequences within the Asian region and beyond. In contrast, Japan is facing the consequences of a severe drop in output through 2008-2009. The central bank’s loose monetary policy is expected to continue, with NAB forecasting low interest rates in that country for at least the next year. Source: Australian Markets Monthly - "A monthly outlook for Australia, Key Global Economies and Markets"