None so blind

• Marty G
• 15 years ago
• Categories: economy
• Tags: recession

I read Reserve Bank Governor Alan Bollard’s speech on Tuesday with great interest. It’s an informative, if very mainstream review of the recession thus far and the outlook. He points out “The international financial crisis actually played little role in the early part of New Zealand’s economic recession. Rather, it was drought, falling house prices and high petrol prices that dragged New Zealand GDP growth negative over the first three quarters of 2008”.

Bollard says we have avoided another Great Depression. That’s thanks to the proactive and coordinated response from the major economies, who were willing to spend the money when it was needed to avoid a downward spiral getting out of control (NZ has been a free-rider on this). Bollard, like the banks, sees growth resuming in the fourth quarter of this year but says it will be weak. Things will get better as long as we avoid another housing bubble (which I think we will do because the demographics underlying the bubbles here and overseas have changed).

OK. That all sounds reassuring. Key has been jump on the ‘no worries folks, problem solved’ bandwagon. The problem is, it’s the view through rose-tinted glasses:

• – no mention that the number of jobs will continue to fall
• – no mention of swine flu, which the Reserve Bank says will cost 0.6% of GDP this year
• – no mention of falling dairy prices
• – no mention of the rising dollar
• – no mention of the risk of another oil spike, as predicted by the IEA
• – no mention that the baby-boomers start retiring next year. The boomers were behind the housing bubble, when they look to cash up it could result in a much deeper price crash, hurting the construction industry
• – no mention that Treasury predicts total workers’ remuneration, the main determinent of consumer demand, will fall for the next two years and not be back to current levels by 2013. Funny thing, a recovery where employment and ordinary Kiwi families’ incomes keep falling. Wonder whose getting the growth?
• – no apparent concern that the financial/housing mess in the US has still not fully unwound and there may bemore shocks to come

Will we have weak growth in the December Quarter this year? Probably. Recession technically over? Yes, for now. We all live happily ever after? No, I’m afraid not.

The risk is that in this very premptive euphoria that the recession is over (we won’t know until next March for sure) we will lose the will to deal with the fundamental economic problems we face.