Further stimulus should be cautiously undertaken

Goldman Sachs

Appreciating the Government's announcement to go ahead of its $500 million infrastructure projects at an accelerated pace in addition to the $480 million business package, Shamubeel Eaqub, economist and research director of Goldman Sachs JBWere's Australia and New Zealand, said, "While small in the context of annual GDP
($180 billion) these are positive and encouraging steps to counter the recession and bolster the aggressive easing delivered by the RBNZ to date."

Contractors' Federation and the Construction Industry Council both have applauded the announcements in their press releases.

Construction Industry Council Chief Executive, Richard Michael, said, "Well thought out packages for roads, schools, state housing and public projects would stimulate the economy and provide social benefits." He further added, "The wide variety of work planned also provides an excellent opportunity for our experienced workers to pass on their skills to trainees, on site. New Zealand's construction industry is ready and able to take on this and future work and we are very pleased that a large proportion of the projects are being fast tracked and will start before June 30 this year."

Much more is still required to be done by the Government and these measures are expected to be announced in the May budget. The Reserve Bank is also expected to continue to cut interest rates substantially. Both these measures and, optimistically, a quick improvement in the global credit conditions should see recovery starting from
2010.

However Mr. Eaqub cautioned that 'the spectre of a ratings downgrade may hamstring efforts to reflate the economy'. The rising public debt, when the private debt is abysmal is likely to see a downgrade.

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