Unemployment poses one of the biggest downside risks to a steady long-term recovery.

I'm starting to feel guilty about this long decadent Auckland summer. It could just be my grandmother's Presbyterian streak kicking it. Or maybe it is the nagging worry of drought with its capacity to cut GDP growth just when the nation needs it least.

More likely though, after yet another week of grim corporate news and job cuts, it just feels weird contemplating the economy's woes from my regular spot at the beach. Looking out at the hundreds of happy relaxed families there seems to be a big disconnect between the state of the nation for those who have secure employment and those who don't.

Mainzeal, Contact, NZ Post, Geon, Summit Wool, Telecom and Solid Energy - February has been a month of high profile woes for many companies. The news paints a grim picture of a stalled economy and is a cause for concern. But the disconnect between these big events and the sublime sun-soaked February experienced by many kiwis is highlighted by political polls which show a bump for the Government at a time when it seems to under seige on all fronts.

Last week Michael Stiassny, chairman of lines company Vector, dampened earnings expectations for the second half of the year by referring to the "the new economic norm".


It is just a label but it is one we are hearing more and more. It is a bit different to the "green shoots" tag of that had captured imaginations earlier in the wake of global financial crisis.

So what does the new normal look like?

It is a low interest rate, low inflation, high dollar environment. If you're a salary earning, mortgage payer with stable employment, times are probably not so bad. Your pay may not be rising fast but that is being offset by lower costs.

Also house prices are on the rise again. That's something that caused a generation of New Zealanders to spend up large last decade as they saw their equity grow and assumed it meant they were richer.

But, as the Reserve Bank points out, we are not yet seeing stronger house prices flow through to increased borrowing and consumer spending as we did in the 2000s. Home owners do seem to have learned some lessons. The big catch is that the last boom has left some serious debt issues that still need to be worked through.

Basically, the new normal is a place where paying down debt has become a priority for governments, corporates and households. So we spend less. That means lower corporate revenues and tax takes. It is a difficult cycle to break out of and means we are still seeing a lot of cost cutting going on through the economy.

The new normal won't be with us for ever, any more than this summer will. The name itself reminds us that norms are ever changing. What we are seeing is a continuation of the rebalancing the economy was alway destined to go through after the last debt filled decade. It was never going to be pretty and it isn't - at least not if you are in the gun for the latest round of job cuts.

But the events of the past few weeks are a reminder that unemployment poses one of the biggest downside risks to a steady long-term recovery.


If we don't create new jobs for those who lose them then we will see more skilled workers heading offshore and a new generation of long-term unemployed. It is vital the Government stays focused on job creation regardless of its comfort level in the polls.