KEY POINTS:
It is much too soon to strike up the band and play Happy Days are Here Again but there are tentative signs in the surveys of business and consumer sentiment that people are allowing themselves to think that perhaps the worst of the recession is over. Maybe. With any luck.
After all, the central bank is in easing mode, the currency is falling, tax cuts kick in next month and oil prices have fallen from the vertiginous heights they reached in July.
A Bank of New Zealand business survey published this week recorded a sharp rise in respondents' views about the economic outlook with a net 27 per cent expecting improvement, a sharp improvement from a net 4 per cent last month expecting things to get worse and a net 62 per cent pessimistic back in March.
It is not a large survey but its results tend to be an accurate pointer to the bigger, older and more detailed National Bank survey. That survey last month recorded a decent lift in confidence not just about the general economic outlook but about firms' expectations of their own activity - about which their views are more authoritative, of course.
A net 5 per cent expect to do better over the year ahead, where a net 8 per cent had expected to go backwards a month earlier. But a net positive reading of 5 per cent is still weak by historical standards.
Among consumers, who have deserted the shops in droves, there are also some signs of improving sentiment. The fortnightly Roy Morgan poll has rebounded strongly since early July, even if it is still low by historical standards.
Meanwhile, the Treasury this week released a brief summary of the anecdotal evidence it has garnered from visiting businesses last month in the course of preparing updated economic and fiscal forecasts to be released before the election.
The overall picture, it says, is one of weak activity in the June quarter but of stable to improving conditions for the rest of the year and into next year.
The farm sector is the most bullish, despite rising input costs and the lingering effects of the summer's drought. Confidence is underpinned by a declining exchange rate and commodity prices, which are still high. Dairy prices are falling but meat, at last, is rising.
Manufacturers expect volumes to be sluggish in the light of the global slowdown, but welcome the lower dollar.
Retailers delivered a mixed message, with some reporting it had become more difficult to pass cost pressures through to the consumer, while others said the opposite.
Tourist operators reported fewer visitors who are spending less and they expect it to get tougher over the next six to 12 months.
Overall the Treasury found hiring and investment intentions to be weak. Firms did not report any difficulty in getting the funds they needed but their borrowing costs had risen.
All in all it appears that if there is some of dawn's early light in the sentiment indicators, it is still a pretty pale, cool and distant glow.
On the home front the household sector will live for years yet in the cold shadow of the debt mountain that accompanied the housing boom.
The metrics there - the ratio of house prices to incomes, household debt to incomes, debt servicing cost as a share of incomes - rose well above what historically have been sustainable levels. There is a big imbalance there which has yet to correct.
And the labour market is softening.
On the international front, the weekend's bailout of Fannie Mae and Freddie Mac is a reminder that even after around US$500 billion of writeoffs, we are far from being out of the sub-prime/credit crunch woods.
There are always two ways of looking at bailouts - relief that they have occurred or alarm that they were necessary at all.
Lurking behind the latter, glass-half-empty view is the risk of debt deflation spiral.
This can happen when people confronted with a deteriorating balance sheet sell some assets to retire debt. This a sensible response. But if too many other people are doing the same thing, the value of their remaining assets may deteriorate further, leaving them with the same problem all over again.
We will not be able to breathe easy again until there are convincing signs of recovery in the underlying market - the American real estate sector.
As long as New Zealand has to rely on imported credit for a large part of its funding, the state of global credit markets is very much our problem too.
Consensus forecasts for growth among our trading partners keep getting revised down and export commodity prices overall are falling.
The falling kiwi is taking some of the edge off that for exporters. The question is how much further it can fall. At less than US67c, it is not too far above where ANZ National Bank economists reckon fair value lies.
They put fair value at US65c, as the point of balance between two opposing influences.
A long-term improvement in the terms of trade (the relative value of exports compared with imports) implies fair value should be higher than its historical average. But our lousy productivity performance implies it should be lower.
As market economists readily admit, however, relying on their forecasts for the currency is as perilous as a climber using a toothpick for an ice axe.
The further the NZ dollar falls the less relief there is from lower world oil prices.
And to the extent the drop in oil prices reflects a faltering world economy, it is mixed blessing in any case.
The Treasury is "not ruling out" the possibly that the September quarter will prove to be the third in a row in which the economy contracted. But it expects growth to return in the December quarter under the combined influence of tax cuts, recovery from the drought and the weakening NZ dollar.
They expect growth for the world year top be in positive territory - just - at about 0.5 per cent.
BNZ chief economist Tony Alexander cautions against reading too much into the rebound in confidence. All respondents are saying, after all, is that they expect things to improve. Better does not necessarily mean good.
"They can see light at the end of the tunnel, but they are still in the tunnel."
