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New Zealand’s economy probably contracted at a slower pace in the second quarter, adding to signs the nation is about to emerge from its worst recession in three decades.

Gross domestic product shrank 0.2 percent in the three months ended June 30 from the previous quarter when it contracted 1 percent, according to the median estimate of 12 economists surveyed by Bloomberg News. The GDP report is released at 10:45 a.m. tomorrow in Wellington.

Reserve Bank Governor Alan Bollard said this month the economy, which began shrinking in the first quarter of 2008, may start growing in the three months through September as global demand improves and consumer spending increases. The recovery will be “patchy” and will require support from record-low interest rates for another year, he said.

“The second quarter is likely to mark the trough in economic activity,” said Doug Steel, senior economist at Westpac Banking Corp. in Wellington. “The economic vibe is changing, with forward-looking indicators suggesting growth has resumed in the third quarter.”

Two of the 12 economists surveyed expect the economy grew in the second quarter. One predicts GDP will be unchanged.

A “small” contraction in the second quarter would mark the end of the recession, the Treasury Department said on Sept. 7, without providing details. Bollard on Sept. 10 forecast the economy shrank 0.1 percent in the second quarter and would grow 0.1 percent in the three months through September.

Construction Slump

A construction slump and further weakness in manufacturing contributed most to the GDP decline, said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland.

New Zealand house-building and renovation work fell to the lowest level in almost eight years in the quarter, according to government figures published on Sept. 8. Home construction slumped 6.5 percent and non-residential construction also declined.

Manufacturing sales excluding meat and dairy fell 2.8 percent in the quarter, according to a second report last week. Inventories dropped, suggesting that sales weren’t coming from actual production, which also subtracts from GDP.

“We are putting more weight on the non-food decline in sales,” said Tuffley. “Construction and manufacturing will remain a drag on activity.”

Business investment also likely fell in the quarter amid tight credit and weakness in global economies, said economists. The Organization for Economic Cooperation and Development this month said the combined economy of the Group of Seven nations will shrink 3 allied insurance.7 percent this year.

World Trade

New Zealand’s economy began contracting early last year after Bollard raised interest rates in 2007 to counter a housing boom and consumer spending that was being fanned by excessive borrowing.

The economy then faced a collapse in world trade and tight credit conditions, which stalled business confidence and demand for exports. The New Zealand dollar’s 26 percent gain against the U.S. dollar in the past six months also curbed exports, which make up 30 percent of the economy, and a slump in international travel reduced tourist arrivals.

As sales slumped, companies shut plants and fired workers, pushing up the jobless rate to a nine-year high of 6 percent in the three months ended June 30.

In response, the government cut income taxes on April 1 and increased spending on projects to generate jobs. Bollard lowered the benchmark interest rate by 5.75 percentage points between July 2008 and April this year and has since kept borrowing costs at a record-low 2.5 percent to help kick-start spending.

Interest-rate cuts and expansionary fiscal policy “are helping arrest the decline in overall activity,” said Steel.

Confidence Recovers

Consumer confidence rose to a 29-month high in the first two weeks of September, according to a poll by Roy Morgan Research published on Sept. 18. Business confidence is at a four-year high, ANZ National Bank Ltd. said on Aug. 31 after surveying 390 firms.

Evidence is also emerging in the housing market and retail industry that consumer spending is recovering.

Retail sales rose for the first time in seven quarters, the government said last month. Warehouse Group Ltd., the nation’s largest discount retailer, said on Sept. 11 that sales increased in the three months ended Aug. 2, the first quarterly gain since early 2008.

Second-quarter house prices rose for the first time in six quarters, and have continued to gain, according to the government.

Adding to second-quarter growth, export volumes jumped amid increased demand for butter, logs and aluminum as nations such as China rebuilt their inventories. Import volumes fell for a fourth quarter, led by weak demand for cars and computers.

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