The economy is in for a bumpy ride this year, economists say, as fears mount about the global impact of a US recession.
The belief that the United States is heading for recession, or may even be in one already, has led to carnage on world sharemarkets since the new year and a dramatic interest-rate cut of three-quarters of a percentage point by the US Federal Reserve.
Because of the time such moves take to work, economists see it more as a bid to reassure the markets and shorten and reduce the severity of a US recession than to stave one off altogether.
How great the impact of a US slowdown on New Zealand is will depend on how long it lasts and how much validity there turns out to be in the idea of "decoupling".
Decoupling is the theory that the Asian economies, which have generated most of the world's growth in recent years, have enough momentum of their own to shrug off at least a short drop in their exports to the US.
If they do, the impact on commodity prices, whose current strength underpins the growth prospects for New Zealand and Australia, our largest export market, should be modest.
Bank of New Zealand chief economist Tony Alexander expects the economy to grow at a weak rate of below 2 per cent this year.
"There will definitely be an impact but there is some insulation," he said, citing the dairying boom, infrastructure spending, job security and wage growth, the prospect of tax cuts and businesses investing.
Any fall in local fixed-term mortgage rates would be limited, Mr Alexander said, when US interest rates began to rise again later in the year as concerns about inflation came to the fore again.
ANZ National Bank chief economist Cameron Bagrie said the world economy was less reliant on the American consumer than it had been 10 years ago.
But economies had become more interdependent because of intricate interconnections of markets, making it impossible to quarantine the kind of problems the US banking system was grappling with as a result of lax lending practices in the "subprime" mortgage market.
With the banks looking sideways at each other, wondering what losses had yet to be disclosed, credit while still available had become more expensive, he said.
"For an economy such as New Zealand, which is very reliant on offshore capital, this is probably the worst possible scenario. We are still managing to tap overseas capital markets but it is far more difficult and is costing more," Mr Bagrie said.
"That is a cost borrowers will have to face, whether it is for housing or in the corporate world."
He is dubious about the decoupling theory.
"If it's just a US problem, the overall prognosis for New Zealand is reasonably good. But growth is fading in Japan and Europe looks sluggish. They are very big shoes for the rest of Asia and emerging markets to fill."
New Zealand Institute of Economic Research chief executive Brent Layton is more optimistic.
He does not believe the US slowdown will amount to a recession. "I don't think Asia will slow a lot, hence the impact on Australia will not be so great, helping New Zealand."
Sharemarkets' volatility reflected uncertainty, Dr Layton said. They were not always a reliable barometer of the economic outlook.
"It is only a very small proportion of the total value of equities that gets traded on any day," he said.
"You can have large movements which affect the value of the market but only a small proportion of players are participating."
In overnight trading, London's FTSE 100 had fallen 0.8 per cent.
After three weeks of falls, the New Zealand sharemarket closed higher yesterday - though only just.