Editorial: Take heart, the dog days are nearly over

Finance minister Bill English. Photo / Sarah Ivey

Finance Minister Bill English sought yesterday to put the best-possible slant on an economy that has come close to stalling.

The 0.2 per cent rise in gross domestic product in the June quarter represented a fifth successive quarter of economic growth, he noted.

There was no applause. The Reserve Bank had, after all, forecast a 0.9 per cent expansion to follow the 0.5 per cent increase of the previous quarter.

Add in an Auckland Chamber of Commerce survey that found the city's business community had experienced a "massive drop in confidence" and there appears to be every reason to worry.

It is easy to see why Auckland business people are concerned. Those who rely on the consumer dollar are operating in an environment in which people are cautious about spending, and paying much more attention to reducing debt.

Household spending was flat in the June quarter, and there is little evidence that consumers are spending up before next month's GST increase.

Others in the business community are suffering as local bodies and institutions postpone new projects in the run-up to the Super City. Little relief is in sight in the next few months, with the probability of further wobbliness.

Yet much of the worry is overstated. The fear of a double-dip recession has receded and a recovery is in progress, even if worries about Europe's sovereign debt linger. One strong reason for optimism is the surge in international trade.

This, according to the World Trade Organisation, is expected to grow by 13.5 per cent this year, a third higher than previous forecasts and the fastest recorded since 1950.

The upswing is, of course, off a low base. World trade slumped 12 per cent last year, a statistic that echoed and contributed in no small way to other wretched economic data. Yet the message is there; the world is buying and selling again.

The implications are obvious for a trading nation such as New Zealand, and for an export-led recovery. Indeed, Fonterra added substance to that proposition yesterday when it announced the payout for the 2009-10 season would be its second-highest.

"Fonterra has come through the recession well," said the chairman, Sir Henry van der Heyden.

"Although business conditions remained volatile, customer demand returned and international dairy prices rose sharply." This was part of a process that saw export volumes grow by 1.3 per cent in the June quarter, up from a 1.2 per cent gain in the previous three months.

The reasons for optimism do not end there. New Zealand is particularly fortunate that two of its major trading partners, Australia and China, proved outstandingly resilient during the global downturn. Australia's soaring currency tells its own tale.

Indeed, the country's Reserve Bank has hinted it may lift interest rates soon to head off inflation concerns.

In contrast, New Zealand's central bank has opted to keep a degree of stimulus in the economy by reining in projected increases in the official cash rate. The latest economic growth data confirm this was the right decision.

Patchy growth will be the lot of those anchored in the domestic economy for some time to come. But if there are no more international jolts, this spell in the doldrums should be measured in months, not years.

Steady growth in the world economy must eventually help to restore consumer confidence and release pent-up demand. More specifically, some businesses will benefit from the reconstruction of earthquake-hit Christchurch and Super City projects.

Further out, there will be the potential stimulus of an influx of tourists for the Rugby World Cup. The sky is going to look much clearer once this prolonged pause in economic momentum is weathered.