Economic Situation in New Zealand

Despite all the talk about crisis, depression has not come to New Zealand. Despite the chatter about crisis overseas, the economic reality is currently quite different in this country. The decline in GDP has been very small (mostly the result of a drought that is over).

Wages are under pressure, but very few people have lost their jobs. Those who do lose their jobs get generous benefits. Business is tough, but that is to be expected after ten years when business was easy. Profits are down, but very few businesses have failed. Adjustments to consumer spending are so marginal, that they hardly show up in the aggregate.

We are not experiencing anything like what happened in the 1930s. Life is still a breeze compared to those times. For the majority of New Zealanders, life just goes on as normal. People are still walking their dogs, not eating them.

The reason is that New Zealand went into the current world crisis in far better shape than most countries.

• We were the first country in the world to go into this recession (GDP went negative during the first two quarters of 2008), but the cause was a drought, not financial jarring. That drought has ended.

• Unemployment has been at a record low.

• Real estate agents and car dealers are suffering, but they have creamed it over the last few years.

• Most New Zealand businesses are in good shape (apart from excessive debt). We do not have any economic cripples like the US auto industry. The weak players here were shaken out during the early nineties.

• Government debt levels were much lower than in comparable nations.

• The New Zealand banking system is relatively sound. Most of the dodgy lending was done by the finance companies. These passed from the scene last year without causing too much pain.

• The decline in petrol prices is helping everyone.

• Homeowners and businesses have been assisted by a sharp decline in interest rates.

• Tax cuts have put extra money in most pockets.

• The devaluation of the New Zealand dollar is compensating exporters for declining commodity prices.

• Food production for export markets is our main industry. The people of the world who can no longer afford to buy SUVs still need to eat.

• Although Bama and Brown’s bailouts are morally flawed, they are keeping their flawed banking systems going.

When the economy appears to be recovering, and politicians are saying that the doomsayers were wrong, and economists are talking about a soft landing, and forecasters are talking up the recovery, but they could be wrong. Just as fear is turning into hope, the economy will probably turn to custard.