NZ outlook brighter, says economist

CHRIS HILLOCK/Waikato Times

BRENDAN O'DONOVAN: "People say 'Is this a fast or slow recovery' ... actually it's middling."

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The seemingly slow pace of the economic recovery is actually business as usual on the upside of a recession, Westpac chief economist Brendan O'Donovan told a group of Hamilton exporters yesterday.

After hours researching economic history back to 1870, the weather and financial markets, Mr O'Donovan's opinion was that New Zealand should stop sweating over the speed of the recovery and start preparing for future growth.

"People say `Is this a fast or slow recovery' ... actually it is middling," Mr O'Donovan said.

Over the next few years, New Zealand was well placed to make the most of a continued boom in developing countries such as China, India and Brazil which were already driving wood and dairy prices and exports.

As their populations moved to urban centres, they would need much more of nearly everything per capita.

"New Zealand and Australia... are already providing the stuff the developing economies want and it is a case of back to the future. It is not all this knowledge-wave stuff, it is the primary sector," Mr O'Donovan said.

That was part of what was making the current recession different from previous ones which had been dictated by the shape of the United States economy and on demand from Britain and Europe.

What happened in those economies still affected New Zealand but the growth of export trade to Australia and Asia since the 1960s, from about 5 per cent to about 55 per cent now, made what was happening in their economies more important.

"The centres of the world which matter to us have changed dramatically," Mr Donovan said.

He said 23 recessions since 1870 had affected New Zealand.

Despite a stagnant housing market and reluctant consumers, he said New Zealand was over the worst of the current recession.

"Recoveries don't happen evenly across an economy and the ones that hurt the most are the ones that are recovering the fastest," Mr O'Donovan said.

Dairy prices had a huge influence on New Zealand's economy. Despite a falling whole milk price on Fonterra's global online auction, he said a combination of world events such as the drought affecting Russia's grain crop and a La Nina weather pattern setting in over New Zealand made for a brighter forecast.

Higher grain prices would affect the United States mostly grain-fed dairy industry and the La Nina weather historically meant better conditions for New Zealand farmers.

Despite headlines saying unemployment was up, Mr O'Donovan said other data such as job ads and hours worked showed the labour market was recovering. Consumers were still cautious about debt but Mr O'Donovan said they would eventually begin spending and the credit crunch would be forgotten.

- © Fairfax NZ News