Interest rates hit lows but recovery hopes just crawl

The year of the "big ease" has floating mortgage and 90-day bill rates at 30-year lows and the dollar keeping them company.

On August 28, amid much publicity, it slid to its lowest level against the United States greenback since the Labour Government floated the exchange rate on March 4, 1985.

Dr Don Brash, the Governor of the Reserve Bank, had been easing monetary policy continuously since late 1996. But this year he got serious about it.

Meanwhile, the Government was supplying a strong fiscal stimulus through the July 1 tax cuts and a reduced, but still substantial, spending programme.

And AMP came to the party with a multimillion-dollar share give-away.

Add it all together and you're way past vitamin supplements. You're talking about a course of heavy-duty steroid injections.

It all kicked in too late to avoid a contraction of about 2 per cent in the first half of the year. But by Christmas there was evidence that the export sector was beginning to pick up and was dragging the rest of the economy into growth behind it.

The final result will not be known until the December quarter gross domestic product figure is released on March 26. But most economists finished the year sharpening their pencils to revise up their growth forecasts after a much-stronger-than-anticipated rebound in the September quarter.

Even the normally ebullient Treasury is expecting a contraction of around 1 per cent.

The reasons the wheels fell off the trolley are well known. Some could have been avoided but the big ones - the East Coast drought and the world downturn - were outside New Zealand's control.

Even the sober Dr Brash has compared the effect of the Asian crisis on New Zealand to the oil shocks of the 1970s. And that was before the turbulence spread to Russia and Latin America.

There are still some large risks on the international horizon, the most immediate being a sharp "correction" on Wall Street.

Although the prospect of a global recession cannot yet be ruled out, most commentators believe it is receding and that New Zealand has now turned the corner.

The recovery will, however, be slow and dowdy rather than dramatic.
- Patricia Herbert, economics editor

Pictured: Don Brash