KEY POINTS:
Global sharemarkets seem to have convinced themselves that the United States is heading for recession, if it is not already in one, and that the rest of the world will not escape the fallout.
Even if they are right, a recession in the US does not automatically or necessarily mean that we have one, too.
New Zealand sailed through the last US recession in 2001 relatively unscathed. Growth slowed to 2 per cent before picking up again.
But inevitably there are differences between then and now.
This time the wave crossing the Pacific comes at a time when the economic boat is lying lower in the water.
New Zealand is in the worst-of-both-worlds phase of its cycle, when growth is weak but inflation is still strong and monetary conditions extremely tight.
While the housing boom is clearly over, its legacy includes levels of debt for some households that will prove uncomfortable, if not untenable, in the context of a global credit crunch.
And with a gap of nearly 5 percentage points between our official cash rate and the average among the G7 economies, it would not be wise for exporters to count on any relief on the exchange rate front, heightened risk aversion notwithstanding.
But there are positive signs.
The overseas prices that matter most for the New Zealand economy are not share prices but commodity prices.
Treasury research into the influences which blow the New Zealand cycle around has found that prices for our exports are a much more important factor than world share prices, world interest rates or even world growth.
Right now world prices for a basket of New Zealand's commodity exports are the highest they have been for at least 21 years, and 30 per cent higher than they were a year ago (which was also a record at the time).
Dairy products have been the star performers, but other commodities have also been making gains as rising incomes in Asia and elsewhere swell demand for the foods of affluence.
Those prices may retreat as the world economy starts to lose some momentum.
There are some signs of that already. ANZ's world commodity price index was flat between November and December, and included the first decline in world dairy prices since August 2006.
But the lags between spot prices and farm incomes are such that there is already a pretty fat cheque from Fonterra in the mail.
The $3 billion or so of additional dairy cash which has yet to flow through the economy will be followed by tax cuts, whichever party leads the next Government.
Wages growth and consumer confidence is underpinned by an unemployment rate that at 3.5 per cent is the lowest for a generation, and remarkably low considering that the economy has been trudging along at a below-average rate for two years now.
The predominant sentiment in the labour market is employers' frustration over how hard it is to find the workers they need, not employees being nervous about losing their jobs.
ANZ National Bank chief economist Cameron Bagrie warns, however, that while the mammoth dairy payout for the current season will see some rural households splurge, the majority of New Zealanders are likely to see their discretionary spending power go backwards this year.
"Who cares about an extra $20 a week in tax cuts if you are paying $5 more for groceries, $2 more for electricity, $2 more for local authority rates, $7 more for petrol and $20 more for mortgage payments?" he said.
"While the dairy payout for the current season is largely guaranteed, a high dollar and recent falls in world dairy prices, if sustained, could see reduced prospects for payouts next season and be the straw that breaks the consumer's and housing market's back."
But there is a sense in which, in the deathless words of the Tremeloes, even the bad times are good.
Imbalances and unsustainable trends need to correct.
Our housing boom, for example, was one of the bubbles inflated by the period of cheap and easy global credit which has now gone so spectacularly and messily pop.
Property-owning baby-boomers may lament that fact but their capital gains came at the expense of the following generation for whom home ownership has been getting further out of reach (one more reason to leave the country) or who had to pre-empt more of their future incomes to service the mortgage.
The average house price has climbed to six times the average household disposable income; its long-run historic average is 3.4 times.
And the proportion of the average household income needed to pay the mortgage is half as large again as it was 10 years ago.
At the global level, a weak US dollar and contracting economy constitute the classical remedy for the large trade and current account deficits the US had built up.
China's central bank, for its part battling an inflation rate now approaching 7 per cent, has indicated it will allow the yuan to appreciate faster.
Things could not have continued indefinitely on their previous course, heading towards a world in which all the saving, investing, manufacturing and exporting is concentrated in Asia, and the rest of the world is reduced to borrowing their money to buy their goods. Relatively speaking, New Zealand's external accounts are in even worse shape than the United States'.
For the year ended September, the current account deficit was $14.2 billion, the third largest ever in dollar terms and equivalent to 8.3 per cent of GDP. The country is a net debtor to the rest of the world to the tune of $151 billion or $35,000 per capita.
This would be less of a problem if all that imported money had been used to fund investment in businesses that help us to earn a living as a trading nation.
But mainly it reflects the fact that households have been willing to borrow more, much more, than other households have been willing to lend, even at high interest rates.
When you are up to your nostrils in debt, you hope that no one makes waves.
Unfortunately, they just have.
