Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: Bad news bears in hibernation

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Talking of economic doom is a hard habit to break but the economy looks set to grow quietly and moderately

"There is stability in the latest forecasts and interest rate track. But stuff will happen." - Alan Bollard. Photo / Supplied
"There is stability in the latest forecasts and interest rate track. But stuff will happen." - Alan Bollard. Photo / Supplied

Looking through the world news wires for some inspiration it all seems strangely benign - war zones aside.

Certainly across the markets things are calm enough. Europe seems dormant and the US is focused on the presidential election.

In the UK, the Governor of the Bank of England, Mervyn King, grabbed headlines at the weekend by being uncharacteristically optimistic.

"There is some light at the end of the tunnel. It is an uncertain light ... but we are hopeful," he said of the British economic outlook.

Locally it has been looking very stable - ever so slightly positive, almost.

The GDP figure released last week for the June quarter was 0.6 per cent giving the nation a modest but solid annual growth figure of 2 per cent.

So what now? None of this changes the hard slog faced by many companies and households right now. Nobody is expecting a big acceleration in growth.

But should we relax, take a break from crisis mode?

Well, this column could break either way on that. What do you feel like reading?

Anyone one with half a brain can construct a coherent argument for a range of economic scenarios.

There is always plenty of evidence out there if you want to make the case for fresh round financial armageddon.

Chinese growth is still slowing, Australia has declared its commodity boom over. Our dollar is still too high for our exporters.

The European debt crisis just needs one political meltdown in one random debt- laden nation to return with renewed vengeance.

And in the US the elections and a fresh round of money printing are obscuring the fact that the nation still hasn't dealt with its debt ceiling problem and will need to break the political deadlock quickly after the election in order to avoid the next default deadline.

So you know, if you really feel like worrying about something there is plenty there.

But it might be that now is a good time to keep focused on the here and now. We have some stability, let's make the most of it.

This is a time of mixed up and conflicting data. So it is probably a time to be thinking on our feet, making decisions based on the facts rather than speculation. That means making decisions more rapidly.

Facts take time to gain their status. That can leave less time to react - so think fast.

Figures like last week's GDP are historic, the June quarter has come and gone, but they are real.

What did it tell us?

For starters it was a good reminder of what a lousy unseasonably wet summer we had. But the subsequent boost in agricultural export earnings now offers some compensation for all those washed out camping holidays.

Rain equals grass growth, equals bumper exports and a GDP boost. It's the same formula that New Zealand has been living off for 100 years.

Remember it was the drought in the summer of 2007/2008 that pushed the country into recession months before the big market meltdown.

Here's hoping for another green summer (although not where I'm camping thanks).

So the strong GDP figure was really about the rain.

That and the first signs of the long expected construction surge out of Christchurch - which is hardly something to be thankful for in the grand scheme of things.

But we do get some lucky breaks thanks to our climate - and climate woes of others.

Just as global commodity prices went into a fresh slump off the back of the China slowdown the US and Russia had big droughts. So grain prices have soared. As that is the main feed for cattle in the Northern Hemisphere it flows through to prop up dairy prices.

So while prices for hard commodities like iron and copper are still falling food commodities are bouncing back. Well, dairy is at least.

As dairy production falls in the US it usually means a glut on the beef markets as surplus cattle are sent off to become Quarter Pounders.

But the commodity slowdown is still a big cloud on our horizons.

If Australia really starts hurting then we will to, regardless of dairy. Australia is the country that takes most of our non-dairy exports. It is our biggest trading partner.

And it is more worrying against a backdrop of such a weak global situation.

Europe still has to actually fix the debt mountain with some sort of structural solution.

It has just delayed that and clearly hopes it can be done in an orderly (dare we say, Germanic) fashion.

Oops ... there we go again, slipping back into the comfortable pattern of a gloom- laden economic commentary.

After more than four years of meltdown mode it becomes a hard habit to break.

Maybe this is just the calm before the next big storm. Best we all keep on with that deleveraging anyway. Probably good idea to drink less and eat more fibre too.

But in the absence of bad news the economy looks set to grow quietly and moderately for a while. That's not a bad place to be.

And if we must gaze into a crystal ball we could do worse than heed the words of outgoing Reserve Bank Governor Alan Bollard, a man who has wisdom born of much experience in these matters.

As he told the Business Herald last week: "There is stability in the latest forecasts and interest rate track. But stuff will happen."


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Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

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