KEY POINTS:
The sun is finally shining in Auckland. The All Blacks are winners again and we've been served a timely reminder that that our Richie McCaw strength agricultural sector is not about to let the economy collapse. Phew.
Oh, yeah...and oil prices
are falling.
For a while during that seemly endless string of cold, stormy days a sense of gloom threatened to overwhelm the nation.
MAF's annual report on the five year outlook for agriculture and forestry couldn't have come at a better time.
It told us that while dairy prices might fall a little in the short term they are set to remain at historically high levels and production is set to increase as we recover from the drought. They told us that lamb prices are set to rise and the wine industry is set to continue its stellar rise.
In all agricultural export earnings are set to rise 26.5 per cent by 2012. A growth rate in excess of 5 per cent and enough to make it highly likely that this latest cyclic downturn is just that _ not some kind of unprecedented economic shift in to the darkness.
Also yesterday, at the national tourism conference in Christchurch, Boeing executive Ken Morton reminded us that despite rising fuel prices his industry still projects massive passenger growth over the next 20 years. In fact, that growth is skewed to the extent that by 2027 Boeing believe 40 per cent of the world's air travel could be in the Asia Pacific region.
That is good news for the nations other big revenue earner - Tourism.
Of course there was the news yesterday that Treasury now believes the nation is in recession. But that was not really news at all. If Treasury had said they didn't think we were in recession that would have been news.
Everyone believes we are now in a recession but that belief won't be officially confirmed until GDP numbers for the June quarter are released next month.
One of the things we need to remember as the gloomy headlines mount up is the extent to which the most extreme examples of this economic downturn are related to the speculative end of the commercial property sector.
The collapse of the sector is now forcing sensible funds to freeze redemptions and it is an ugly look. New Zealand investors have always been overly exposed to property the credit crunch only serves to highlight that.
But the sector does not define the economy. The recession we are now in has as much to do with the drought that crimped agricultural production this year as it does with the credit crunch.
The upside of the crunch is that it is creating leeway for Alan Bollard to cut rates. As jittery international investors turn of the kiwi dollar it will fall and drive up the value of export returns. That's good news for the ag sector and even better for local manufacturers who don't have the benefit of a global food commodity boom to prop up their margins.
In time the economy will right itself.
One of the biggest risks related to the falling dollar was the possibility of an oil shock as we were forced to pay more in US dollar terms.
Touch wood, we may have seen the short term peak in this oil price cycle. If so then timing hasn't been so bad. An historical peak in oil has combined with an historical peak in our dollar to buffer us from the worst of the shock.
Ok, there will be more fund freezes and credit crunch fallout to come. There will be more writedowns by the banks and residential property prices have a way to fall yet.
Oil will continue its slow, long term march higher as demand continues to outweigh supply, the rain and wind will be back and the All Blacks may lose again.
But while there are a risks to being a "Polly-Anna" about worrying economic times, history would suggest there is a far greater risk posed by giving in to the gloom.
- LIAM DANN
