'NZers are not hurting enough'

The pain of the recession is not deep enough to teach New Zealanders what they need to learn, Infometrics chief executive Gareth Kiernan says.

In publishing Infometrics' economic forecasts, Mr Kiernan said a predicted gradual improvement in the financial situation for most Kiwis would accelerate to the point where debt and savings habits would again be a problem.

New Zealand was in for a tough short-term outlook, with tight labour markets, a high dollar and a "crappy" export outlook, particularly for dairy products, but the medium term was brighter.

Nonetheless New Zealanders had not yet learnt "they are poorer than they currently think they are", and the Government was not helping.

International debt was still rising and the Government had not displayed a sharp enough willingness to cut spending, Mr Kiernan said.

"Some of those wasteful policies we have developed over the last one to 15 years are only gradually coming in. Nobody is making the hard decisions."

A cautious atmosphere would endure until 2012, Mr Kiernan said, with employees having to suffer low wage growth and relatively high unemployment and households pushed into paying down debt.

While the recovery would be nothing compared with the growth experienced in the past 10 years, due to tighter credit conditions and the like, consumers would find their old habits hard to shake.

A resurgence in savings levels and house prices during 2012 and 2013 would remind consumers of a time when they could spend up large, Mr Kiernan predicted.

After a year or more of gradual improvements mixed with snippets of bad news and data, people would start to be convinced of the upswing.

"That will give businesses confidence to invest and households the confidence to start spending on things they have clamped down on. People will start to revert to their old ways."

That optimism would gain momentum leading to inevitable questions about New Zealand's international debt position and current account deficit.

"The timing is neither here nor there, who knows when that will happen, but the message is that we are not going resolve all those issues, despite the fact we have the opportunity to do so."

New Zealand's ability to rebound without experiencing the deep troughs of economic activity that other countries were going through may ultimately turn out to be a disservice to the long-term financial health of the country.

He said it was unfortunate that the recession was unlikely to teach New Zealanders the lessons that needed to be learnt.

- © Fairfax NZ News