Glass half full, but filling

OPINION: The glass may be only half full, damn it, but there's certainly enough in there to whet the whistle.  At a minimum, recent economic figures demand the business community collectively raise its tumbler in toast to the New Zealand economy.

The good news contained in the quarterly and monthly business opinion surveys from the Institute of Economic Research and National Bank, respectively, suggest growth expectations for the coming year have been grossly underestimated.

Not that you would know it from reading the business press. Sometimes it takes an Australian to point out the good news.

''I thought it was quite a good survey but all the locals seemed to ignore it,'' TD Securities senior strategist Annette Beacher says. ''I've been watching New Zealand for some time and [Kiwis] are very good at picking the eyes out of the negative.''

Beacher, an Australian who covers both trans-Tasman economies from Singapore, says the muted response can be put down to the fact ''the Kiwi numbers don't have the cash-grabs that the Aussie numbers have''.

Australia's economy is leaping ahead. Last week's employment figures (35,200 new jobs against an expectation of 10,000) suggest a fast and dramatic recovery is well under way.  But there's plenty to enthuse about in New Zealand's business environment, too.

Beacher points to the result from respondents around their expected ''own activity''  in the National Bank survey: ''I think it's an absolute blockbuster. The net balance is up to plus-37, a seven-year high.

''Taken literally, it would mean gross domestic product (GDP) growth of 4 per cent to 5 per cent.''

 Growth of such magnitude is well ahead of Reserve Bank expectations of 2.5 per cent and market consensus of 2.4 per cent, but the survey has traditionally proved a good guide of what's to come.

 ''It correctly predicted that GDP was going to be sub-zero for the best part of 12 months and now you can't rule out that it could correctly predict a similar surge on the upside,''  Beacher says.

If you were to pick a letter from the alphabet soup of economic predictions, a V-shaped recovery is now looking a better bet than pessimistic forecasts of a W-shape.

When comparing trans-Tasman economic performance, it's worth bearing in mind that Australia's federal government threw taxpayer money at its retail and housing markets last year. In New Zealand, not $1 was spent on those sectors.

Yet retail sales have surged, dwelling approvals are at an 18-month peak and the median house price is returning to pre-crisis highs. Annualised migration flows, Beacher adds, are running at plus-25,000, far outstripping house construction. Business confidence is up and capacity utilisation is over 90 per cent.

''What more evidence do you need?'' Beacher asks.

The most  positive aspect of recent data is employer hiring intentions, which is back into positive territory. If other pieces of the economic puzzle fall into place, 2010 will see a reduction in the unemployment rate from its present 6.5 per cent.

Much depends on global conditions. News out of the United States is mixed at best. But the Pacific region is no longer dependent on American growth for economic health. ''We don't move independently of the US  it's still the largest economy in the world  but in terms of true economic ties and transmission mechanisms, it's fairly loose between the US and Australia and New Zealand.''

The relationship with Asia in general and China, in particular, is now much more important.

China is going gang-busters and demand for Kiwi produce, particularly dairy, is soaring. In fact, growth for all New Zealand's trading partners is being steadily revised upwards. Westpac is picking global GDP growth of 3 per cent this year.

Perhaps the best indication of New Zealand economic strength  and an early warning sign of growth pains ahead  comes from inflation expectations. Beacher has been doing the sums and her analysis shows it has ''picked up from about 2.5 per cent and now it's about 2.9 per cent''.

That's still within the Reserve Bank mandate of 1-3 per cent but, as Beacher  notes: ''What happens when the economy really picks up speed? Are we going to have inflation expectations of back to 4 per cent?''

It's too early to be alarmist, she reassures, but the emergency official cash rate of 2.5 per cent is ''well and truly past its use-by date''.

Still, after the woes of the last 18 months, a little inflation could be  welcome.

Nick Smith is a senior financial journalist.

- © Fairfax NZ News