KEY POINTS:
Some key indicators in the past month suggest the economy is over the worst for this downturn - but beware the false dawn, economists say.
The stats are not as strong as they appear and the economy is still too far out of kilter to undertake a sustained recovery. We are in an elongated cyclical trough, and a decent rebound is a 2008 story at best, they warn.
New Zealand sucked in imports at a record rate last month - $3.9 billion or $1.43 for every $1 of exports.
That followed news that retail sales jumped 1 per cent in the September quarter and signs of continued vitality in the housing market.
"We are certainly seeing a spring in the consumer's step as the year ends," said Westpac chief economist Brendan O'Donovan, "and that's the result of a drop in petrol prices and continued strength in the housing market."
But retail sales have been following a track of two steps forward, one step back. The September quarter was up 1 per cent on June in real terms, but it was also only 1 per cent up on September last year.
"The amazing thing is that retail sales volumes have slowed to 1 per cent growth in the past year without a housing correction. When the housing market eventually runs out of steam we will have the consumer in go-slow mode for a couple of years," he said. "But associated with that will be far lower interest rates and a lower currency. And with a lag of about a year you will start to see benefits to the export side of the economy. It will be a tough transition ... but the productive side of the economy has to have its time in the sun."
O'Donovan is not forecasting a recession, but after the present short-term rebound he sees a period of growth in the 1.5 to 2 per cent range. "Nothing to slit your wrist over, but nothing to write home about either."
Bank of New Zealand chief economist Tony Alexander says the economy has probably slowed down as much as it is going to. "But there is no upturn. We are looking at two or three years of mediocre growth around the 2 per cent area."
A strong economic upturn in the next few years was almost impossible because of a shortage of resources like people, machinery and electricity.
"And in the past, sharp upturns have followed sharp downturns which have encouraged the Reserve Bank to slash interest rates to 4.5 per cent or whatever and send the currency falling. That's not going to happen this time. We think they will cut the rate at best down to 6 per cent [from 7.25 per cent now] and the chances of the kiwi dollar getting below US50c this time look pretty slim."
Businesses should not plan on the basis of a life-saving economic boom in 18 months' time, Alexander said.
ANZ National Bank chief economist Cameron Bagrie said: "We are going through a temporary reprieve but the big picture is still one of slowing growth." Imbalances such as the high trade and current account deficits needed to be purged, he said, and the major culprit was import demand, driven by consumer spending.
"What is going to be the big circuit-breaker that shakes us out of this comfort zone where things are still pretty good? There are several possibilities."
One is that businesses, their profits under pressure, start vigorously shedding staff.
Another is a further rise in the kiwi, as tends to happen over the Christmas holidays, hitting exporters whose currency hedging is already wearing thin and the rural regions most aligned with their fortunes.
Another possible circuitbreaker is the Reserve Bank tightening the monetary screws. "It might say to the housing sector: You are going to slow. You have had repeated warnings. Alternatively, the bank might already have done enough and things start to tighten up in the new year."
And there was always the possibility of an international shock.
First NZ Capital's Jason Wong said that while business surveys showed rising confidence and official economic data had become more positive, the latest round of corporate results and earnings guidance gave a more subdued impression.
"Our view is that we are 75 per cent of the way through the economic downturn and the economy is in a troughing-out phase. GDP growth probably won't go much lower than the 1.4 per cent annual growth record in the June quarter, but it is still on target for not much more than 2 per cent over the next 12 months."
Vital signs
* September retail sales up 1 per cent on June.
* Net inflow of migrants 14,000 in the year to October, 4000 above long-run average.
* Median house price up 3.5 per cent last month and nearly 10 per cent for the year.
