KEY POINTS:
If you are one of the hundreds of Fisher & Paykel Appliances employees losing your job, you could be forgiven for thinking the economy was on the skids.
The manufacturing giant is transferring its washing machine and clothes dryer division to Thailand. That will cost 350 jobs in the company, and approximately 20 suppliers and contractors at smaller firms around South Auckland will be affected over the next year.
A little further up Great South Rd, Otahuhu-based bedmaker Sleepyhead is warning it could be lights out for manufacturing in New Zealand thanks to interest-rate hikes and the high dollar.
But redundancies aside, what is the state of the economy?
Employers and Manufacturers Association manufacturing manager Bruce Goldsworthy says the sector faces "a number of challenges", including a high exchange rate, high company taxes and high interest rates. Manufacturers must compete on a global playing field, as 93 per cent of all imported goods carry no duty.
The sector is a resilient one, Mr Goldsworthy says, with about 250,000 employees. There will be casualties, such as Fisher & Paykel, however.
The economy is a multi-headed beast, and while the manufacturing "head" may be a little down in the lip, others are smiling.
Forget the weekend shopping trip to Sydney, there's lots of shops, lots of choice, and competitive prices in New Zealand, says Retailers' Association chief executive John Albertson.
A high dollar is helping retailers dependent on imported goods, and low unemployment and more money boosting sales volumes has left the sector feeling "generally positive", he says. However, rising ancillary costs, such as fuel, and having to pay a minimum wage, has left the retail industry "a bit of a mixed blessing", Mr Albertson says. The introduction of the Kiwisaver superannuation scheme - starting later this year - could slow spending in the short term, though people would have more money to spend in future years, when they retire.
A buoyant property market was also tightening retailer margins, with shop owners having to shell out more for rates and rents, he said. In the residential property market, says BNZ chief economist Tony Alexander, a continuing shortage of properties, combined with wage and salary growth, saw turnover grow 9 per cent on last year.
Mr Alexander reckons Auckland house prices will continue to rise, probably about 5 per cent this year. The steady stream of migrants - 50 per cent of whom come to Auckland - will continue to create demand.
Unless you happen to be working in the dairy sector, things are tough down on the farm.
The high kiwi dollar has conspired with some bad weather to hit cockies where it hurts most, in the wallet. Federated Farmers' president Charlie Pedersen said it had "not been a flash year" for farmers, who were "only spending what they have to", and sales of new agriculture machinery has "completely dried up".
But unlike their beef, sheep and cropping counterparts, the dairy sector is looking good, with international dairy prices "higher than anyone can remember".
THE VIEW FROM THE TOP
The Weekend Herald asked Finance Minister Michael Cullen's office for his views on the economy.
Is the economy in crisis?
No, it is suffering from an imbalance after seven years of strong growth. Underlying growth remains strong, but the mix is causing stresses. Growth is being led by domestic demand rather than exports, causing inflationary problems.
Do New Zealanders have too much debt?
Our household savings record remains very poor by international comparison. The OECD said last week household debt had climbed sharply, to around 160 per cent of disposable income, higher than most other OECD countries.
Is setting interest rates the best way to control inflation?
Yes. New Zealand has led the world in our macroeconomic framework: Targeting inflation using interest rates has now been adopted by countries all over the world, including the United Kingdom, Australia, Canada, the European Union and the United States.
What else can the Government do?
What the Government can do is ensure fiscal policy is supportive of monetary policy, and help raise the productive capacity of the economy over time.
For the last seven years the Government has run large cash surpluses. It is encouraging greater investment by companies to improve the productive capacity through a range of measures to be announced in the Budget.
Is Government spending adding to the problem?
No, fiscal policy remains one of the tightest in the developed world. The difficulty is that those advocating even tighter fiscal policy (and therefore even larger surpluses) must point to what Government services should be cut.
Why is inflation bad?
Inflation destroys wealth and robs exporters of competitiveness, thus undermining the economy's productive base. It can trigger a wage price spiral, causing even greater inflation over time. We saw those problems in the 1980s.
TWO VIEWS
The economy is in great shape, or is it? The Weekend Herald spoke to two economists with sharply differing views.
Khoon Goh
ANZ senior economist
One must separate "the cyclical from the short term" says Khoon Goh.
He believes that though the New Zealand economy has its ups and downs (it is now a bit down), it emerges from each cycle stronger than it was before.
There are several indicators that the economy is doing well.
A free-floating exchange rate, and an independent central (reserve) bank that has moved to slow inflation.
The Government also has the best set of accounts of any country in the developed world, with low debt and healthy surpluses.
That health will guarantee the Government keeps investing in infrastructure, he says.
On a more tangible level, global commodity prices are healthy, which has lessened the effect of a strong New Zealand dollar.
And manufacturers, who had a rough time of it in previous years, have made themselves less vulnerable to the vagaries of overseas markets by moving to export more "high-end and niche products", such as electronics.
Of course there are the odd things to worry about - such as "uncomfortably high" inflation, and high household debt, but, overall, the future looks bright.
"I think we are very well positioned for the longer term."
Nick Tuffley
ASB economist
Every silver lining has a cloud, says Nick Tuffley. Though he doesn't think the economy is in bad shape, there are areas in which it "could do better".
Last year's slowdown in economic growth was necessary, he says, as New Zealand lacks the productivity growth or resources to indefinitely sustain 4-plus per cent growth. However, the chief concern is the imbalance in the economy. Much of the recent strong growth has come from debt-driven spending. The seeds for that were sown after the global tech-wreck. Lowered interest rates equated to increased spending - through a global recession. And this habit continued when the environment improved.
As the Reserve Bank lifted interest rates to slow household spending (and dampen inflation), the dollar got pushed up sharply and remains high.
Export earnings will remain hampered into next year by the knee-capping effect of the high NZ dollar. The upshot is that our current account deficit exceeds 9 per cent of GDP. House prices are also very high relative to incomes, and some closing of the gap is likely through subdued price growth. But while the adjustment occurs, economic growth is going to remain subdued relative to the spurt we enjoyed a couple of years ago.
