How will you cope in tough times?

Job losses and reduced access to credit will be some of the consequences of the global recession for New Zealanders but experts say we're well placed to weather the storm.

And there's no point in panicking, says financial adviser Lisa Dudson. It's wiser to take a deep breath and acknowledge it is impossible to influence the financial markets and instead focus on what is possible, she says. And that means going back to the basics "that good old word we all love budgeting".

BNZ chief economist Tony Alexander says New Zealand has some insulation which will reduce the impact of the recession for the US, UK and Europe. Our banks are strong and we have not exposed ourselves to bad loans which have rocked the United States, resulting in bankruptcies and people losing their houses.

"The New Zealand economy is going to be weakish but probably not as bad as overseas and nowhere near as bad as it has been in many past recessions in New Zealand."

But there will be some pain, with the labour market the largest area of concern. Construction and related industries, along with the tourism sector, are two that could face job losses. Some of the main ways the global downturn will be felt in New Zealand include:

Potential job losses unemployment is expected to climb from the current level of 3.4% to around 5% by the end of next year.

Credit will be more difficult to obtain it will be harder to get personal loans, and first-time buyers may find it harder to get a mortgage.

Small businesses owners will be unable to borrow against the value of their home to fund the business.

ASB Bank economist Nick Tuffley agrees that cash flow and job security will be among the major issues for New Zealanders. He advises caution, but not over-reaction. And it's not all negative. Food prices are likely to come down along with petrol costs.

Alexander says his long-term outlook is positive. "My longer-term outlook is the best it's ever been but my short-term outlook is the most uncertain, not the weakest, but the most uncertain it has ever been."

What current economic conditions could mean for you:

First-home buyersIT COULD be good news for first-time buyers. Alexander says they may be the winners in the current economic environment as lower interest rates, lower living costs and falling house prices coincide to make now a favourable time to buy. "This is good news for first-time buyers who keep their job."

But with the squeeze coming on borrowing as a result of the global financial market downturn, credit will be harder to get. First-time buyers will need a decent deposit. But interest.co.nz managing editor Bernard Hickey takes a slightly harder view, saying that if current conditions continue, it could get very difficult for them to get a new loan.

On the plus side, Alexander points out that first-time buyers are also less likely to have large investments, meaning they won't have taken a hit as share prices drop.

Existing home ownersIT'S MIXED news for existing loan holders. Tuffley says the expected official cash rate drops that determine interest rates are likely to overcome the higher rates lenders demand in times of uncertainty.

While fixed rates could remain high, the good news is that short-term rates are likely to drop which means homeowners who are due to roll off existing rates might be able to refinance at cheaper rates.

House prices have been dropping for some time now with the latest Real Estate Institute figures showing prices are down 6% compared to last year. Treasury predicts prices will fall a total of 11.3% from their peak in December 2007 and remain flat until 2010.

Alexander says that as residential construction drops off the resulting reduction in supply will lead to house price stabilisation.

Middle-income familiesTHE BIGGEST issue for middle-income families is job security. Alexander predicts unemployment rates will reach 5% by the end of next year while Hickey says it will reach 6%.

New Zealanders haven't been big on saving over the past few decades and so aren't exposed to collapses in financial assets prices, but this means they depend on continued income from their jobs. But while unemployment will climb, Alexander says it is not expected to reach the same level as it did in 1997 and there is still some demand for labour. The good news is that families will get some relief as food prices pull back, petrol prices come down and interest rates fall.

Investment holdersANYONE WITH a large portfolio will be taking a knock. On Friday the NZX-50 fell 4.1% and Alexander says global share prices are down 35% from a year ago. But he points out that some of this has come after years of growth. Tuffley says younger investors who are some years away from retiring have usually exposed themselves to more risk, meaning better gains in boom times but in this tougher time they are more likely to take hits.

Experts point out that investments are often a long-term project.

Nearing retirementIT'S MIXED news for people heading into retirement. Most will have conservative portfolios, meaning their money is relatively safe. However, lower interest rates will mean lower returns on term deposits. Those calculating that their returns might finance a new car or holiday may have to rethink, but lowering global prices for steel should mean appliances are cheaper. Retirement commissioner Diana Crossan says some people on the cusp of retirement will be hurting but not everyone draws down all their money when they hit 65, and some people will be able to ride it out.

Tips REVIEW YOUR own financial situation and redo your budget.

Look for easy ways to save money are you using your gym membership, does your insurance plan still suit you?

If you don't have a budget, now is a good time to think about one.

Talk to your lender the moment you get into any trouble. Finding a way to solve the problem is better than getting further into debt.

It's always a good time to start saving. If you can manage it, think about a savings plan.

- © Fairfax NZ News