Recovery makes a slow start

BNZ chief economist Tony Alexander says there is no evidence people will open their wallets. Photo / Mark Mitchell

You might call it a Clayton's recovery - the one you have when you are not having one, according to economists.

Unemployment is still increasing, car dealers are going broke and "for rent" signs decorate shopping areas.

New Zealand Institute of Economic Research's chief economist Shamubeel Eaqub says it will be three years before living standards approach 2007 levels.

The problem is New Zealanders' huge debts - more than three times those recorded following the 1987 crash.

And BNZ chief economist Tony Alexander says there is no evidence people will open their wallets. People will only replace their stove or car "when it's conked out after they've been fixing it for three years".

Unemployment is always the last measure to improve in a recovery. Eaqub estimates another 40,000 people will lose their jobs next year and will peak at 8 per cent late next year.

With unemployment still rising, bankers will be careful lenders. Eaqub doesn't set much store by the house price recovery, putting it down to a shortage of listings.

Alexander is more bullish. High debt has not restricted people from spending or borrowing in the past, so house prices will keep edging up.

Eaqub believes shops, entertainment and other consumer-related sectors will show the first signs of recovery.

If and when the dollar weakens, farmers and other exporters will gain next. He says improved exports will take their time to help: the dairy sector is still not profitable and the total export economy is outweighed by the much larger, debt-ridden internal economy.

Alexander says it will take until late next year before the tourism sector shows a noticeable improvement.

Land Transport Agency figures show the increase in government spending on roads will be $421 million a year.

Eaqub says the increase will continue to be a fillip to the construction industry, but is a small part - just 0.2 per cent - of the country's $180 billion annual production.

A Clayton's recovery is not a time to gear up and take a risk with borrowed money, experts agree.

With current low floating interest rates, Alexander recommends homeowners should reduce debt.

"People should ask themselves: 'If I had no money for three months, would I lose this house?' If the answer is yes, don't borrow the money," Alexander says.

Who's been affected
* Lost or locked up savings will affect the rate at which the economy recovers significantly. Some $6.1 billion has been lost in the finance company debacle, according to estimates by interest.co.nz.
* More than $2b has been lost and a further $4.1b frozen.
* More than 200,000 people have been hit, as many of the 190,000 accounts will be in couple's names.
* For many, it will be years before they can access their savings. That means there will be less money around for replacing carpets, paying builders, lending money to children for house deposits, or taking a trip.