We all knew New Zealand was in recession in the first six months of this year. The official figures have confirmed this. The surprise though is on the upside. The consensus had been that the economy had shrunk 0.5% in the quarter. In fact, it was 0.2%. Remember that this figure occurred during the height of the latest oil price spike. Petrol increased 13% in price over this period. So, the fact that our economy could weather this storm better than expected speaks to its underlying strength.
Conditions have improved in the last few months. But things look set to get tougher in coming years. The current credit crunch and the global waves of volatility moving from one market to another (housing, shares, oil, gold, commodities, food) are signs of the global economy reaching the limits to growth. In the next few years we will face ever higher oil prices as peak oil hits and shortages of other resources will flow from that (as an example, there is now a waiting list for the huge tyres mining trucks use: the ingredients are oil and rubber, there is not enough oil, and rubber plantations are being replaced by palm oil grown as biofuel). We will also face a demographic shock as the baby-boomers retire: the housing market will tank, the workforce will stop growing, while the number of dependents will rise. Larger than all of these concerns, climate change is happening more rapidly than anyone predicted. In the last few days, plumes of methane gas have been reported rising from the Arctic Ocean; it appears the undersea permafrost is melting. If you don’t understand the implications of that, I’m afraid you will in the coming years.