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Corin Dann: Winter blues?

opinion Corin Dann

By Corin Dann ONE News Political Editor

Published: 12:04PM Friday July 30, 2010 Source: NZI Business

Has New Zealand's economy just got the winter blues or is something more sinister going on?

There can be little doubt now that the New Zealand economic recovery has gone off the boil slightly in recent weeks.

The big hopes of businesses at the start of the year, which were reflected in record high business confidence levels, have evaporated and some parts of the economy, such as retail and housing, are almost stuck in a state of paralysis.

There is now a growing chorus of complaints about weakness in the economic recovery from both business and unions.

And yesterday the Reserve Bank - whilst sticking to its plan to hike interest rates back to normal levels - acknowledged this slow down and the need for more caution when setting interest rates in coming months.

It's now likely we will see a pause at one of the next three OCR meetings this year. Maybe even all three.

It is the prudent thing to do to flag a pause given the huge uncertainty in both the local and international economies at the moment.

There's little agreement about which way the economy will go from here (i.e. v-shaped recovery or double dip) or what the best policy response is.

Is it more government spending? Or more belt tightening? Is inflation the big threat? Or is it Japanese-style deflation?

Frankly there are good arguments for each scenario.

Next week will provide a little more clarity on the situation at home with the release of local employment data.

First up will be the wage inflation stats to be released on Tuesday.

Back in March, figures showed overall annual wage growth was just 1.5%. Unfortunately given the sticky nature of wages, it's hard to see that there will be much of an improvement next week.

And the unemployment rate itself could also worsen.

Some economists I've spoken to are forecasting unemployment to increase to around 6.1 or 6.2%, mainly due to an increase in the numbers of people looking for work.

They don't, thankfully, expect it to last at those levels for long. Let's hope so.

But even if there is just a small blip up in unemployment next Thursday, it won't do great things for the already negative mood of the economy.

Still, let's not lose sight of the fact - New Zealand is still performing a lot better than many trading partners' economies.

It's also the middle of winter and that can bring us Kiwis down at the best of times.

When the sun is shining in three months, things might look a whole lot different...