Bollard upbeat on early recovery

New Zealand is likely to lead the world out of the recession, Reserve Bank Governor Alan Bollard says.

In his most upbeat remarks in months, Bollard told a Hawke's Bay audience yesterday that New Zealand had a rare opportunity to "rebalance" its economy.

"Early signs of global recovery have now emerged. We have avoided a repeat of the Great Depression," Bollard said.

"The New Zealand economy has taken knocks in this crisis, but some form of recovery is now on the horizon. Our opportunity is to use this time to rebalance the economy for the medium term."

He said world growth would probably be subdued for several years, and fiscal stimuli would be necessary for some time.

Bollard's remarks follow a report that finds swine flu is likely to cost the country up to $900 million and precede a speech on the economy by Prime Minister John Key today.

Key said yesterday that he planned to tell a Wellington business audience of the major problems in the economy, as well as some potential solutions.

The economy had systemic problems that were holding back its potential, he said. "The truth is that as a government, if we're going to close that gap with Australia, we've got a lot of work to do ..."

Key said there was no "silver bullet" to solve the productivity issue. "It's a combination of a lot of different thoughts and programmes ..."

Bollard said household savings, investment in the economy's productive base and greater depth of credit for funding markets were keys to economic recovery.

Renewed house-price inflation could threaten the recovery. "Reliance on past experience of strong house-price inflation and easy credit will be untenable."

In an admission that the official cash rate had not curbed excessive borrowing, Bollard said the Reserve Bank "appreciated that interest rates are a blunt instrument".

The Press