Bay 'doing okay' in tough times

Here's some "surprising" news. The Bay has fared better than other areas in New Zealand during the last three years of economic recession.
The builders, small business owners, and some retailers and real estate agents in the Bay may not agree with that statement.
But Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research (NZIER), told an audience in Tauranga this week that the Bay wasn't hit by the global financial crisis to the same extent as the rest of the country.
"Through 2009/10 while the rest of us were contracting you guys held on - due to a divergent economy," he said.
"There has been growth in financial and business services to cater for the ageing population, and the primary sector has been performing ... so have the distribution and export sectors because of the port. Some bits (of the local economy) are going well, and it's nice to see a region doing okay in a country that's had a severe recession," Mr Eaqub said.
His view has been backed up by National Bank's Regional Trends surveys. The Bay had the highest year-on-year regional growth of 3.8 per cent for the three months ending December, and then was third in the March quarter this year with 2.6 per cent and just behind West Coast and Otago with 2.8 per cent.
The National Bank said in the March quarter the Bay's labour market perked up, with the number of people employed rising 3.2 per cent - more than twice the nationwide rate of increase. The number of registered job seekers dropped 1 per cent, compared with a 2 per cent rise nationally.
Mr Eaqub said during the recession many businesses have held onto staff and reduced their working hours, rather than getting rid of them. "As the economy recovers, they will go from working 30 hours to 35 and 40 hours, and you won't [immediately] see a surge in employment.
"The present unemployment rate is 7 per cent but the labour market has a lot of slack - if you take the under-employed people, then the rate would be 13 per cent. But businesses will be in a position to increase output quickly without having to hire new people," he said.
In saying that, Mr Eaqub said the Christchurch re-build will soak up 20,000 contractors/builders - that's getting back to peak employment levels in the industry.
"Builders were paid $30-$35 an hour and today it's $45 - that's a big jump in costs," he said. "It will be $25,000 more to build a house (in Canterbury) and that's going to affect everyone else as well. The inflation rate will creep up over the next two years."
Mr Eaqub, who also worked for ANZ Banking Group and Goldman Sachs JBWere, spoke at the Radio Live Bay of Plenty function in the Mount Cosmopolitan Club on the theme: "What's up with the economy?"
He said: "I'm convinced the worst is over and we are emerging from the recession. It will be a moderate, slower and more sustainable recovery. We will not see the same exuberance as in the past decade and people will not fall into the honey trap of debt."
He is describing the next phase of the economy as "A return to innocence". Mr Eaqub said during the recession people put away their wallets and this wasn't necessarily a bad thing.
"This is what we saw with our grandparents who didn't rely on capital gains or debt. People will begin to spend more and invest more - increasing consumption - but it will be at a gradual pace. They will do it off the back of income and not borrowings."
Mr Eaqub predicted economic growth would be between 2-2.5 per cent over the next few years, and not the 3 per cent that previously had been driven by borrowings.
People will be more conservative and be prepared to trade down. "For instance, the Pams brand has moved up in shelf space in the supermarkets. The first half of this year has been hit by high fuel and food prices. We can't avoid this and this has dampened spending and confidence. "If families are struggling to put food on the table, then nowadays they don't care how cheap a flat-screen TV is," Mr Eaqub said.
One of the problems at the moment, he said, was that people were being over-cautious. "Everyone is trying to be more optimistic but they don't want to invest first; they are waiting for the next guy to do it. That's holding back the recovery. Part of it is that business profits are not very good.
"We need to provide some finance to speculators - they are the people willing to take risks to kick-start an early recovery - but not in the way we saw with the finance companies.
"Banks are lending a bit more and they will invest in the bigger companies who will lead the recovery. It will be an uneven recovery path for business," Mr Eaqub said.
On the housing market, he said prices will go sideways for a while yet until wages and standard of living catches up.
"Prices used to be two-and-a-half times household income; now its five-and-a-half times. You cannot tell me that's sustainable.
"We have seen an overall 10 per cent fall in prices [over the past three years] and any present recovery in the market is coming off a weak base. I think the housing market still has some pain to come," Mr Eaqub said.
Long term, he said some "courageous" government had to reduce public spending on the likes of Working For Families and interest-free student loans.
"We cannot afford to offer free healthcare for everyone and the costs of the ageing population will be a major issue. There has to be some form of means test.
"The consultation to cut out some of the fat has started," Mr Eaqub said.