Have we reached the recovery yet?

Recession done and dusted, then. It wasn't too bad, was it? At least most of us kept our jobs, many public companies saw profits go up, not down, and that through the eye of winter's harsh economic storm.

Now a not-so-awful August is a harbinger of better times ahead as economic growth ratchets into positive territory in the New Year if not before while homeowners and exporters cheer the continuing slide in interest rates and the dollar.

Throw in some October tax cuts, maybe another dollop in April, and winter's passive window shopping will surely give way to some good, old-fashioned impulse buying before too long.

So the experts were right. A short, sharp, shallow recession one survey reporting the country in "half-recession" with normal service set to resume, well, very soon.

Um, not quite.

Yes, our grossly over-heated economy has taken the knock it had to have. And yes, the reckless, unrealistic housing sector has been taught a sharp lesson, while consumers with over-fed credit cards are having to pull in their horns.

But economists spend so much time qualifying their commentary around signs of economic uptick and surprisingly chipper consumer and business confidence surveys that you wonder if we're not all living in parallel but quite different universes.

You can hear the gears grinding as they try their level best not to quash the Pollyana in us all as we enthusiastically take on board the latest piece of encouraging news.

"Yes, we are seeing things starting to stabilise after a severe winter shock, and in some marginal respects noses are poking above the parapet again," said BNZ senior markets economist Craig Ebert.

The problem is there is still so much uncertainty out there both in the local and now even more so, global economies, he said.

"You could as easily run a scenario that we're seeing the start of a gentle recovery as you could a false dawn where the economy in its general functioning turns much worse next year," he said. A dead-cat bounce instead of a turning worm.

Westpac chief economist Brendan O'Donovan calculates the simultaneous shock of oil prices, credit crunch, housing shock and drought delivered an annualised $6 billion hit to our economy during the June quarter. In a country the size of New Zealand (GDP $180b), that constituted a real knock, he said.

A long list of recent encouraging data the confidence surveys, lower oil prices, migration figures, building consents, electronic transactions and so on show the slide has been stopped, at the very least.

But even if that translates into the gentle recovery so hoped for, that will have hugely different outcomes for different industries and regions.

"We might get some growth back into the economy, but that may not feel crash-hot for consumers in Auckland for some time yet," he said. There, house prices had been hit harder than elsewhere, and credit card debt had been higher.

Better placed to ride a reviving economy were places such as Taranaki, Ashburton, Southland and Wellington.

Independent economist Rodney Dickens said the residential building industry had yet to experience the worst. "It has downside well into next year, as does the retail motor industry."

On the house price front, economist Gareth Kiernan is predicting prices will continue to gain downwards momentum over next year, with an average drop of 10%.

Dickens said: "We may emerge from a technical recession by the end of the year, but for some people and some industries that will be a nonsense."

Figures due later this month are expected to confirm a second successive quarter of negative GDP growth, the technical definition of a recession. There may be a third, but economic growth measured in such terms is widely expected to resume in early 2009. But for Ebert, those numbers may not mean a lot for many ordinary New Zealanders.

One big difference between this and previous downturns has been the low unemployment rate this time round, currently at 3.9%.

Losing jobs is what makes people feel absolutely terrible, and employers went into the current recession facing a labour shortage and not surplus.

But that may change as businesses deal with continuing cost pressures, and Ebert believes the unemployment rate could hit 5%-plus. "So we may get through the recession in terms of an end to contracting GDP, but the cost in human terms could step up just at that time," said Ebert.

While the local economy shows signs of starting to stabilise, the opposite is true of global economies where the situation appears significantly worse. For a long time the US economy was seen as critical to the health of other economies, but right now the US looks the best of a bad bunch.

European economies are stalling, Britain is talking about the worst recession since the 1970s, Australia is slowing, and most significant of all, questions are being asked of Asian economies.

O'Donovan said whether the Asian slowdown was temporary or more long-lasting could have a massive impact on commodity prices. "Continuing economic strength in Asia meant confidence that commodity prices would hold up, despite a North American and European slowdown," he said. But some "pretty ugly" convergence of global trends were worrying.

But even real optimists on the New Zealand economy are not expecting sustained growth rates like we have seen recently. If we start to climb out of the mire early next year in economic growth, conditions will probably never be as good as we have experienced in the last five years. 

EXECUTIVE STRESS: LONG HOURS AND TAX

Overwork is the greatest worry for chief executives and business owners, not the state of the economy.

A telephone survey of 400 business owners and chief executives by accounting firm Staples Rodway found a third felt very stressed by the hours they worked.

Fewer reported feeling stressed by tax issues (32%), which came in second place, or slowing company sales (28%).

The economy in general was rated fourth (26%) in the list of worries.

Many did not expect their worry levels to drop any time soon 46% said they did not expect their stress levels to drop within a year.

Peter Guise, chairman of Staples Rodway, said that judging by the response, the state of the economy might not be as bad as some commentators made out, with businesses continuing to do well. The hours business owners and chief executives were working was a response to the tougher conditions out there.

"What we are seeing is company managers are spending more time working in their businesses at the present time looking at reducing costs, dealing with tax issues, and trying to work out where they are going to get more business from," said Guise.

Continual tinkering with tax had created a nightmare for businesses, and it was no surprise it ranked so highly up the list of concerns. The IRD was harder to deal with as it was loaded up with new responsibilities, while new investment tax and differential tax rates were making business harder.

Even tinkering with the payment dates for provisional company tax was a problem. The next date is January 15, when everyone is supposed to be at the beach and cashflows for many businesses are at their weakest.

"I can't think of a more stupid date," Guise said.

- © Fairfax NZ News