Hope grows amid the rubble

The merchants of economic doom were busy after the terrorist attacks, but WARREN GAMBLE finds optimism poking through in NZ.

The shopping malls of the United States lost two-thirds of their customers on the day the World Trade Centre crumbled to terrorists.

American shoppers, who drive their country's - and by association the world's - economic growth, stayed at home in shock and disbelief on September 11.

But by last weekend monitoring agencies found retail cash registers were ringing at volumes below but not far off normal trading.

And the first retail study since the attacks, published by the ABC/Money Magazine, even recorded a slight rise in consumer confidence.

The same survey showed store purchases had risen slightly last week as Americans stocked up on food, flags and emergency supplies.

The effect on longer term, big-ticket buying remains to be seen. Some analysts say theories of a defiant spending response to the attacks may not prevail against a more natural inclination to sit tight in times of trouble.

That would be so especially if there are further attacks or US retaliation creates a protracted war and a global economic meltdown.

But those unknowns aside, a growing consensus in New Zealand and overseas is for a brighter economic outlook than appeared possible from the rubble in New York.

The consensus says that while the events of September 11 will steepen the decline of an already weakening US and world economy, the dip may not be as bad as first feared and the recovery could come earlier next year.

Aggressive interest rate and tax cuts in the US and extra Government spending, all in response to the terrorist attacks, have given economists hope that an expected recession will be short-lived.

And while there will be casualties, a number of the expected victims, such as airlines and airline manufacturers, were already in deep trouble before the attacks.

For once in its economic life, New Zealand might be better placed than many to ride out a brief world recession.

Our economy has been chugging along at a comfortable and sustainable growth rate of around 2.5 per cent.

Though there are signs that export sales, the main engine of that growth, are slowing, that could be offset by a domestic economy revved up by interest rate cuts and extra Government spending announced last week.

Which is where New Zealand shoppers enter the picture.

Most retailers spoken to by the Herald say that while it is too early to accurately gauge the attacks' impact on cash registers here, anecdotally there has been little change.

The Retail Merchants Association says its Auckland members, including chain stores and shopping malls, report business as usual last week.

The association's Auckland regional manager, Russell Sinclair, says the Reserve Bank's surprise 50 basis point cut to official interest rates on Wednesday and the Government's accelerated capital spending programme were positive moves offsetting consumer uncertainty.

"Sometimes, too, our isolation has its benefits," he says.

The Auckland Chamber of Commerce says it has had reports of retailers suffering in the aftermath of the attacks as shoppers put off decisions. But chief executive Michael Barnett says the economy is largely in good shape.

As long as United States retaliation does not create lasting global uncertainty, Mr Barnett expects a temporary dip, not a recession.

The Real Estate Institute says sales in Auckland have held up well during the past week and the big interest rate cut will lure first-home buyers into the market.

"There is confidence out there," says institute president Rex Hadley. "If anything I think we will see a minor blip, certainly not a lasting one."

That could change, depending on the nature of the US retaliation.

But he believes even the economically vital tourism industry, bracing itself for a downturn, might eventually benefit overall because of New Zealand's "safe haven" image.

Tourism leaders have set up an action group to counter a possible slump in visitor numbers.



The attacks have yet to have much impact on tourism and industry leaders are more concerned with the financial problems swirling around Air New Zealand.

Exporters have a wary eye on the potential global slowdown, but their immediate concern is also with Air New Zealand and the illwill that has been generated across the Tasman from the collapse of its subsidiary Ansett Australia.

Meat and apple exports are at the end of their seasons, and distributors hope some stability will have returned to world markets when sales are cranked up next month.

Manufacturers say a dip in American consumer demand will affect what has been a strongly performing sector in the past year.

But the northern Employers and Manufacturers Association chief executive, Alasdair Thompson, says he does not expect any downturn to be longlasting.

"There is a very strong determination on the part of George Bush and the Government in the United States not to have a recession over this," he says.

"That's why I think there will be a bounce back pretty quickly."

Deutsche Bank chief economist Ulf Schoefisch says that before the attacks he had believed the weakening United States economy was about to turn for the better.

The situation is now much worse, leading to expectations that the economy will contract over the next two quarters - the definition of a recession.

But Mr Schoefisch says the interest rate cuts, extra public spending and other measures announced in the United States would lead to a good recovery by the middle of next year.

New Zealand is in "as good a shape as could be hoped for in a situation like this".

The key to any recovery, though, is how quickly uncertainty over the attacks and the United States response will disappear, says Mr Schoefisch.

If a protracted war erupts, dragging more participants in, all optimistic economic bets are off.

* In Forum tomorrow: two economists offer different perspectives on what the terrorist attack on the United States will mean for the world economy and New Zealand.

Full coverage: Terror in America

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