Double dipping

Written By: - Date published: 8:59 am, August 11th, 2009 - 20 comments
Categories: economy - Tags:

No, not another post about Bludger Bill, this one’s about that thing that he and Key are meant to be taking care of. What’s it called again? No, not the cycle-way. No, not solving disputes over wills. Um, bear with me, it’ll come back to me.

Oh, right, it’s the economy.

That thing? But everything’s OK now isn’t it? The recession’s nearly over. There’s more job losses and wage cuts coming but they’re just a ‘lagging indicator’. Growth will be back soon and we can start to put all this unpleasantness behind us. Happily ever after.

Wait, not so fast. Now mainstream economists are saying what we’ve been warning for some time. The end of this recession may be a false dawn. Sure GDP will grow start growing again for a while but the fundamental problems that sent us into recession – oil supply, toxic financial assets, over-investment in housing – have not been addressed, they’ve only been temporarily alleviated by falling economic activity.

Yesterday, ANZ economists warned there is a danger of ‘double-dip’  or ‘W’ recession – growth at the end of this year turning into more contraction new year:

“the way commercial construction, the unemployment rate and dairy incomes are shaping up, there is a huge void to fill. The real message in our `W’ cycle is that we do not believe recent signs of recovery are of sufficient quality (that is, it’s the wrong growth mix) to be sustainable, given NZ’s external and balance sheet position.”

They think that if we’re lucky, we might avoid just a second recession next year. But I think that the risks are more to the downside. The ANZ analysis hasn’t looked at the possiblity of international shocks to our economy if other countries also double-dipping due to more financial shocks and/or oil shortages (which the IEA is warning could happen from next year).

sleepytimes - smallOur economy is still on shoddy foundations. The growth that is coming is being built, once more, on house prices rather than sustainable exports. That can only lead to the same result as the last housing bubble. It’s not a good outlook but we aren’t helpless. Once again, it’s the Government’s job to provide leadership by making the reforms that are needed and investing in the right areas (which we’ve discussed in depth in other posts). Instead, they seem to be in cruise control, assuming that everything is looking up and nothing needs to be done. The ANZ report should be a wake-up call, before it’s too late.

20 comments on “Double dipping”

  1. lprent 1

    I wouldn’t hold out much hope of NACT doing much. They are not into being effective in anything apart from cheap PR and rotting taxpayers

  2. lprent 2

    Opps rorting taxpayers. The iPhone spell doesn’t know the word

    • Tigger 2.1

      I suspect we all will be ‘rotting’ come the Depression (I give it another six months before it hits). Note the capital D. It’s going to be nasty.

      Given their lack of ability to manage during a recession, NACT has no hope of guiding us through a Depression. Only good news is that it will limit them to one term.

  3. Ianmac 3

    I am sure that Gareth Morgan months ago warned that there would be a lightening of gloom but will be followed by further serious downturn. He said that it would be foolish act as though we were out of trouble which will extend well into 2010. Gloomy/pessimistic or realistic? (I know little about economics by the way.)

  4. Personally I think we’re stuffed until we end our oil-addiction. Until such a time that happens as soon as we get an economic recovery we’ll have another oil-spike, which will send us back into recession.

    Someone send that memo to Steven Joyce and his transport policies please.

    • Draco T Bastard 4.1

      Yep, we should begin phasing out personal vehicles about now and build electric rail. Not going to happen under NACT though who seem to look to the 15th to 19th centuries as if it was some golden time. Especially the bit about Absolutism.

  5. coolas 5

    The changes needed to re-structure the economy are out of this Government’s philosophy and ability.

    Labour would be struggling too but at least has some voices who recognise the most out of whack elements: Housing investment imbalance, exchange rate uncertainty, and household debt.

    Kiwi Saver is a mechanism to channel money into productive investment as well encouraging saving for retirement.

    Next step has to be a capital gains tax on investment residential property so to make that type of investment less attractive than shares etc. BUT this could be political suicide for any party given the Kiwi obsession with housing investment.

    Stabalising the $NZ by pegging, as China does, would bring certainty and with that more confidence for long term investment.

    Getting people to save, like the Japanese and Chinese, can be encouraged tax incentives and guarantees.

    Tinkering is all this Government has the will to do. They seem to be fiddling around impatiently waiting for things to improve so they can make their move on Assets and ACC.

    • Draco T Bastard 5.1

      Sometime I think they’re waiting around impatiently waiting for things to get worse so they can make their move on our assets.

    • Zaphod Beeblebrox 5.2

      Actually I think you are being a bit to kind to NACT. Their cost cutting in areas like R and D and all forms of education as well as their efforts to wipe out local government initiatives have set us apart from the rest of the world- who have been thinking up creative ways to protect their societies from the myriad of problems emerging, (which have been well described by many on this blog).

      The result- US, Europe and Australia are showing signs of their economies returning more to growth. NZ by contrast, had its highest quarterly unemployment increase for 21 years last week.

      Any chance NACT may invest in creative policies like ‘Cash for Clunkers’, urban public transport renewal, green energy or community development? Not while they’ve got their heads stuck in the Milton Friedmann textbook.

  6. corkscrew 6

    What worries me is the proliferation of ‘The happy day’s are back again’ articles that are coming out in the MSM. I’m thinking especially of thing’s like the Herald’s now two day attempt to paint a very modest year vs year uplift in July retail spending as the beginning of the recovery. I’m an economic dope but even I know if one year the month has four Fridays in it and the following year it has five you would expect retail spending to increase.
    While there is nothing wrong in being positive this goes beyond that, it’s poor reporting because either its unaware of the underlying issues or its deliberately fudging them.

    • jarbury 6.1

      The Herald earns a lot of its money from real estate advertising so is always looking for signs that the property boom is going to return.

      They seems convinced that the current situation is a blip in a long-term path. One could take the alternative view that any recovery is likely to be the blip.

  7. Pat 7

    How about the ANZ pay their tax bill. That would help.

  8. Draco T Bastard 8

    Our economy is still on shoddy foundations.

    It’s called capitalism and people have been saying for the last couple of centuries that it doesn’t actually work. It got as far as it did solely because of cheap oil and excess energy and now that that has run out the economy can no longer grow to pay the interest (Not that the interest was affordable in the first place).

  9. Bill 9

    I’m strangely drawn to L.

  10. vto 10

    My own theory from a few years ago was that the world was going to have another great depression. Couple of reasons – overdue, short memories, world of debt was a house of cards, etc. Part of my theory was that there would be a double-bottomed bottoming – reason, politicians would what they could to avert said downturn (on their watch) but that such interference (stimuli etc) would ultimately fail and the world would eventually find the level that it would have anyway without the political interference. I picked 2010-2015. Thought I had my timing out but maybe not.

    Don’t know what can be done to further avert…. maybe beam an SOS into outer space or hope for divine intervention..

  11. Adrian 11

    Here in Marlborough this week, good local top-class builders who have never been out of work are home doing the lawns with nothing on the drawing board. The bite has just started to go on.

  12. outofbed 12

    I know “stuff all about economics” but my son who has a masters with dist in the subject
    said something about a w shaped recession a couple of months ago.
    That sounded like he knew what he was on about so last night I asked him about about the increased retail spending and house price increases. He said “people obviously haven’t learnt the lesson yet, but they will”
    It was all to ominous and darkly foreboding so I quickly changed the subject to Dan Carter.
    That made us both feel much better

  13. Swampy 13

    Labour must be getting fairly desperate now. They are hoping that more people will lose their jobs, their livelihoods and their houses by the recession lasting as long as possible.

    See, this is a naysayer’s post. Never thought I would see someone advocating for the recession.

    Are you an economist? What qualifications do you have for your sweeping generalisations about the direction of our economy?

    • BLiP 13.1

      Are you an economist? What qualifications do you have for your sweeping generalisations about the direction of our economy?

      Believe me, Stumpy, economists are the last people you want to hear making sweeping generalisations about the direction of our economy. By the way, what qualifications do you have in this regard?

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