Luxury cars are the latest evidence of an economy in very good health. Annual sales, we report today, were rising until 2008, then fell in the recession that year, dropped further in 2009, recovered steadily in 2010 and 2011 and exceeded their pre-recession level in 2012. Last year their saleswent higher still and on the evidence of the first half of this year, 2014 will set a new high.
Not many of us, of course, drive an Audi or a BMW, and that, too, is a commentary on the economy. The boom might not be bringing its benefits to people at all levels of wealth. Average wages in New Zealand are still too low. But a strong economy is much better than a weak one if steps are to be taken to raise everyone's incomes.
It is hard to remember when the economy was ever better than it is now. House prices and household credit are not rising at the levels they were before the 2008 recession but that is a good thing. Real estate, like luxury cars, has recovered the value it lost and prices at the top end continue to rise. But the market is no longer frenzied. Auctions are mostly quiet, buyers few and sellers even fewer as property is withdrawn rather than sold for less than the vendor wants.
The cooling of the property market is good for two reasons. It means the Reserve Bank need not raise interest rates further, thereby relieving pressure on the dollar and improving exporters' earnings. It also means property investment might not be as attractive as it has been and banks might broaden their lending, possibly making finance available on easier terms for productive industries.
The Reserve Bank raised its base rate this week for probably the last time this year. A fall in dairy prices as well as the quieter property market have reduced the risk that economic activity will exceed the country's productive capacity and cause inflation. After governor Graham Wheeler warned on Thursday that the dollar had risen to an exchange rate that was "unjustified and unsustainable", the rate tumbled on Friday.
In the absence of further interest rate rises, farmers can probably bank on an easier exchange rate from here on. And looking further ahead, the United States dollar should rise against all floating currencies as the US economy regains growth. Business in the US seem to be still nervous at the Federal Reserve's withdrawal of its monetary stimulus but the sooner that happens the sooner their conditions will return to normal.
New Zealand is not accustomed to outperforming most other economies like this. The surge of activity from the Christchurch rebuild accounts for a great deal but sound, stable public policy is the secret. Long may it last.
