Our economy feels like it's about to have a big party, and not a Christmas party.
Next year is shaping up as a stellar one for growth. ANZ's survey this week showed businesses are the most confident they've been since 1994 when the economy was growing at an annual rate of 7 per cent. ANZ's composite indicator of business and consumer confidence suggested our economy could be growing by 5 per cent by the middle of next year.
Wholesale milk powder prices are up more than 50 per cent this year and Fonterra has forecast production will rise 6.4 per cent this season. Our Terms of Trade, which measures the power of our exports to buy imports, are the best they've been since 1974.
The $40 billion rebuild in Canterbury is cranking into gear and Auckland house building is also starting to wind up. Home owners feel about $65 billion richer than they did last Christmas because their house values are up 10 per cent.
The ANZ business confidence survey showed businesses are keener to employ people than they've been since 1994.
After nearly six grinding years of stop-start recession and timid growth the economy seems set to finally take off.
We appear rich and happy again, largely because we have become reliant on the export of one product to one country. This week's GDP and trade figures showed milk powder exports to China have been the driving force behind economic growth surging to its best level in three years. China is now our largest export market and trading partner ahead of Australia. Although we are not as reliant now on China as we were on Britain in 1974, the indirect reliance is almost as large because our second-largest trading partner, Australia, is also reliant on China.
New Zealand's economy is heading into next year exposed to a single market and single product that is not too different from the one it had 1974. This time New Zealand households have a lot more debt and the nation is expected to run a current account deficit of 5 per cent of GDP. Household and farm debt has more than tripled to more than 100 per cent of GDP since 1974. New Zealand's net foreign debt has more than quintupled to 70 per cent of GDP. The real test will be when the Reserve Bank increases interest rates. Most now expect floating mortgage rates to rise from 5.75 per cent now to around 7 per cent by the end of next year, which would add more than $520 a month to the cost of a $500,000 mortgage.