NZ Herald business editor at large

Liam Dann: This economic downturn is awesome

How serious is all of this? Well bad for other countries but as indicators go in New Zealand, it probably doesn't get any more worrying than Bill English opening his cheque book. Photo / Getty Images
How serious is all of this? Well bad for other countries but as indicators go in New Zealand, it probably doesn't get any more worrying than Bill English opening his cheque book. Photo / Getty Images

There's no inflation, interest rates are set to fall again and the Government is promising a spend-up to make Auckland an even cooler city to live in. So far this economic downturn is awesome.

The powers that be are reaching for heavy medicine to ensure GDP growth doesn't stall. For the mortgage holding middle class it is a pretty tasty formula.

I wish I could enjoy it but I can't shake a nagging sense of dread about the reasons behind all this fiscal and monetary stimulus.

READ MORE:
Liam Dann: It's time to think radically
Liam Dann: Why low prices are bad news

We know the Reserve Bank team is worried because they really didn't want to have to cut rates further this year. Yet governor Graeme Wheeler yesterday sent a clear signal that they are likely to. The market is now picking a 50-50 chance of a cut in March.

Things have turned for the worse in the past six weeks. Today's cut to the Fonterra farmer payout is the most recent evidence of that.

Last week's low inflation number was the other big downside surprise. That showed we had deflation in the last quarter of 2015.

Since then oil has slumped further and financial markets have tumbled.

So how serious is all of this? Well as economic indicators go it probably doesn't get any more worrying than Bill English opening cheque book.

The Government's move to stimulate growth by boosting infrastructure spending is a sign of real concern that New Zealand could get stuck in a deflationary cycle of low growth.

Falling prices feel good for consumers on the way down. But, as we saw in Japan, deflation is a beast that slowly strangles economic growth.

Current predictions are for about 2.4 per cent GDP growth this year. That's a pretty good number by global standards.

But growth underpinned largely by immigration and Government spending isn't really sustainable growth.

Emergencies measures will give the flagging economy a boost, lower rates will drive the dollar down and boost export returns, but these aren't transformative solutions that this Government once talked about.

- NZ Herald

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter

SIGN UP NOW

© Copyright 2016, NZME. Publishing Limited

Assembled by: (static) on production bpcf03 at 28 Sep 2016 01:34:03 Processing Time: 645ms