WELLINGTON (Bloomberg) -- New Zealand’s recession probably extended into a third quarter as consumers and businesses reined in spending and exports of milk, timber and wool eased.

Gross domestic product shrank 0.5 percent last quarter from the previous three months, prolonging the nation’s first recession since 1998, according to the median estimate of 13 economists surveyed by Bloomberg.
A deepening slump may force central bank Governor Alan Bollard to further reduce interest rates in January to revive domestic demand. Prime Minister John Key’s government, which won a Nov. 8 election on a pledge to cut income taxes by NZ$4.4 billion ($2.6 billion) from April, said last week there’s a risk the economy may not begin expanding again until 2010.
“The Reserve Bank will be surprised by ongoing weakness in the economy into 2009,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. “Despite substantial government and central back action, global credit markets remain disrupted and the economic outlook continues to deteriorate.”
New Zealand joined Japan, Europe, the U.S. and Singapore in sinking into a recession this year as the global credit crisis buffets consumer and business confidence and cools trade.
The World Bank forecasts international trade will shrink in 2009 for the first time in more than 25 years. Exports account for about 30 percent of New Zealand’s NZ$180 billion economy.
The economy contracted 0.3 percent in the first quarter and declined 0.2 percent in the second quarter as record-high borrowing costs stalled the housing market and a drought crimped farm production. Though the drought has ended and borrowing costs have declined, fallout from the global economic crisis has prolonged New Zealand’s recession.
Seven of 14 economists surveyed predict a half-point rate reduction to 4.5 percent on Jan. 29. Three expect three-quarters of a point cut and four tip a one percentage point move.
The jobless rate rose to a five-year high of 4.2 percent last quarter, and the government forecasts it will climb to 6.5 percent by mid-2010. ANZ National Ltd’s poll of business confidence slumped in December to the lowest level since the series began in 1988.
New Zealand’s retail sales slipped 0.9 percent last quarter, the third straight decrease. The number of homes sold tumbled to a 26-year low in August.
Construction fell 2.1 percent from the second quarter, the third consecutive drop, because fewer homes were built.
Exports slid 2.3 percent in the third quarter. Dairy shipments, the nation’s largest export, slid 4.3 percent.
Manufacturing slumped to the lowest level in five years in the three months through September.