KEY POINTS:
History never repeats, Split Enz told us. There is always some difference that makes a difference. But the similarities can be instructive, too.
A couple of Reserve Bank economists, Michael Reddell and Cath Sleeman, have been looking at six previous recessions in New Zealand - the imbalances which
preceded them, what triggered them and what made them worse.
They draw no conclusions about the situation now, beyond saying that "there is nothing in the material in this article to suggest any greater reason for optimism" than the downbeat view expressed in the bank's June monetary policy statement.
They note the mitigating factors - fiscal stimulus and commodity boom - but say these factors "have much to mitigate".
By my count 12, maybe 13, of the 17 recessionary factors they list are at work now, two of them - a global credit squeeze and a large rise in oil prices - in spades.
Riddell and Sleeman conclude that material global slowdowns almost always lead to marked slowdowns in New Zealand. Little comfort can be drawn for the recent exception of 2001 because we went into it with an undervalued exchange rate and relatively low interest rates, most emphatically not the case now.
Some of the deeper recessions were "associated with financial excess, reflected in overvalued asset prices".
Sounds like a fair description of the recent housing boom.
Two of the longest recessions, in the mid-1990s and early 1980s, followed oil shocks. Those were the dismal years of stagflation, of little or no growth but runaway inflation.
"Overall, policy struggled to juggle objectives - maintaining living standards, limiting the rise in unemployment, limiting the rise in interest rates, while also trying not to let inflation get out of hand."
The economy has changed profoundly since then. Monetary policy is conducted independently of the Government and focused on a single overriding objective, containing inflation.
The dollar floats. Financial, product and labour markets have been deregulated, making the economy much better able to cope with shocks.
But it still runs on oil. Relentlessly rising oil prices drive up costs and crowd out spending on other things. And the money leaves the country.
The latest oil shock is kicking the economy when it is down.
The housing boom has turned to bust. One indicator of that is housing loan approvals, which are down 22 per cent by number and 29 per cent by value on a year ago, according to the Reserve Bank.
Given how stretched all the traditional measures of affordability were, it is a case of better late than never.
But it has taken a painfully high official cash rate - with all the collateral damage to the traded good sector the accompanying high dollar implies - reinforced by a global credit crunch, to bring that about.
The dangers of asset bubbles was rammed home by the 1991-92 recession which had its origins in the 1987 sharemarket cash.
Overseas central banks had eased markedly after the crash to prevent it spreading, as the saying goes, from Wall St to Main St.
But they soon had to tighten again to bring inflation back under control. There was also a 32 per cent surge in oil prices associated with the first Gulf war.
At home, fiscal policy made things worse. Unlike now, the Government was heavily indebted and had to find the money for a bailout of the Bank of New Zealand.
The credit rating agencies indicated they were considering a double downgrade and there were fears the country's ability to continue to borrow abroad might be in jeopardy.
The upshot was the "mother of all budgets", falling house prices and a jump in the unemployment rate from 7 to 11 per cent.
Monetary policy wasn't much help either. The newly independent Reserve Bank was still struggling to get inflation under control and, as it turned out, succeeding rather faster than it believed.
Altogether a grim time. So it is startling that consumer confidence now, as measured by the Westpac McDermott Miller survey, is back down at the levels prevailing then.
One reason may be that it has been 10 years since we had a recession, making it harder for people to calibrate the scale of downturns.
The current one has been made worse by drought. Without the initial impact of drought on agricultural production and downstream processing, the March quarter might just about have squeaked into positive growth, instead of the 0.3 per cent contraction recorded.
It was also a factor in the post-Asian crisis recession, but in that case it was a two-year drought. There are other similarities.
Interest rates were high on the back of a housing boom and tax cuts, and the dollar was high, too. And inflation had been at or above the top of the central bank's target band for a couple of years.
The bank made a mess of its response. It underestimated the severity of the downturn for one thing.
And it was experimenting with an idiosyncratic policy instrument, the monetary conditions index, and had yet to adopt the more conventional mechanism of an official cash rate.
That experience may underpin two more of Riddell and Sleeman's conclusions: "Resisting falls in the exchange rate usually exacerbates the downturn" and "Forecasters, at the bank and outside, typically have little idea how deep any slowdown will be until we are well into it."
For what it is worth, the most recent survey of forecasters by the New Zealand Institute of Economic Research last week found an average pick of just 1 per cent for economic growth over the year to next March.
That is sharply down on their view just three months ago, when the mean forecast was 1.7 per cent, and masks a wide range from just 0.3 per cent to 2.1 per cent.
At the same time, their expectations for inflation over the year ahead have jumped to 3.9 per cent from 3 per cent three months ago.
If we are in a recession right now, as many economists believe, it won't be official until the June GDP figures are released in September.
Westpac economists are optimistic about a strong rebound next year, based on a return to normal growing conditions, Fonterra's bullishness about next season's dairy payout, a weaker currency bringing relief to other exporters too, and tax cuts.
But at ANZ National Bank they believe the particular combination of headwinds the economy is battling means the adjustment will be "elongated".
With revenues under pressure and costs rising at every turn, firms are being forced to focus on extracting efficiencies and lifting productivity.
This is the next leg of the cycle, they say, and a rather painful one for the casualties of a weakening job market.
