Is the recession over?
September 8th, 2009 at 7:38 am by David FarrarThe recession stated in the first quarter of 2008, and Treasury is saying it thinks it may be over. Later this month we’ll get June quarter GDP which is expected to be negative, but September quarter they believe will be positive.
The iPredict market tends to agree with the price for negative GDP growth in September being just 18c, or 18%.
If this is correct, unemployment may peak at below 8%, which would be good.
As I blogged yesterday though, prospects for strong growth are weak. This will not be like the period from 1993 to 2007 where strong growth led to so much increased tax take that one could significantly increase spending every year (and reduce taxes or have a big surplus).
NZ is likely to maintain a fiscal deficit for many years, during which time restraint on state sector wages and other state spending will be important.
Tags: recession, Treasury
September 8th, 2009 at 7:59 am
Restraint on wages? You probably mean restraint on the state sector, full stop. It is high time that the knife goes into a whole bunch of unnecessary agencies, committees and departments. Some serious slash and burn in the more bloated ministries wouldn’t go amiss either.
Vote:September 8th, 2009 at 8:18 am
No. There might be a bounce but the fundamentals in Europe and the US are still flawed, the only thing making their figures look even reasonable is the amount of money being thrown at the economy. Real indicators are all down. The markets are hugely overvalued.
Vote:NZ and Aus might be less affected, that remains to be seen. Certainly the perception that the housing market is recovering is deceptive.
September 8th, 2009 at 8:19 am
It may looking like over-ish for now but will be get walloped again? Financially the US recovery is still shaky, have they fixed things or delayed the rot? Coupled with their continued slide into social political dysfunction there are big risks, I don’t think it is time to relax yet.
Vote:September 8th, 2009 at 8:39 am
We need to spend the next 3 years getting ready for the following 15-20 years.
We need to be cautious and careful about personal and public expenditure.
We need to avoid another housing price bubble.
We need to trim inefficiency and waste line by line.
We need to focus our current spending with thoughts of the future harvest of such spending.
We need to install better faster broadband, better roads, better infrastructure.
We need to have a better educated , literate and numerate workforce.
We need to attract hard working migrants to this country.
We need to encourage talented Kiwis to return to NZ.
Hell it’s obvious.
We need to re- elect a National led government that is doing all these things in 2011, 2014 and 2017……………
Vote:September 8th, 2009 at 8:40 am
” Financially the US recovery is still shaky, have they fixed things or delayed the rot? ”
They have not fixed things !!. Just thrown printed money at a problem caused by to much loose money.
Look for another major depression about 2014.
Vote:September 8th, 2009 at 8:58 am
“NZ is likely to maintain a fiscal deficit for many years, during which time restraint on state sector wages and other state spending will be important.”
Restraint on state sector wages and state spending is important AT ANY TIME! In good times or bad times state spending should be on a tight leash. How is NZ going to get a lower tax environment, higher growth and at least maintain its standard of living if not improve it if we don’t restrain state spending in the long term?
Vote:September 8th, 2009 at 9:00 am
reality-check..for any ‘green-shooters’..
http://whoar.co.nz/2009/the-economy-is-stuck-in-a-vicious-circle-where-weak-consumer-demand-is-inadequate-to-power-a-recovery-and-government-stimulus-spending-is-not-sufficient-to-make-up-the-difference/
phil(whoar.co.nz)
Vote:September 8th, 2009 at 9:02 am
and you were wondering who..(apart from whoar .. aug. ’06)..
..’got it right’…?
with the early economic meltdown predictions..?
http://whoar.co.nz/2009/the-financial-crisis-economists-and-politicians-who-got-it-right-photos/
phil(whoar.co.nz)
Vote:September 8th, 2009 at 9:22 am
Yay, the recession is over.
Vote:September 8th, 2009 at 9:34 am
On a lighter note, the bigger problem is that we run a debt based monetary system that is a mathematical impossibility. Smoke and mirrors that will implode eventually.
Woodrow Wilson signed the 1913 Federal Reserve Act. A few years later he wrote:
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”
Vote:September 8th, 2009 at 9:37 am
Happy happy joy joy.
Vote:September 8th, 2009 at 9:59 am
Once employment has stabilised we need to attack the Public Service which grew at twice the rate of inflation and population growth under Labour. That needs to be managed down to a point where state spending is closer to 30% of GDP. That reduction alone would bring our income and expenditure statements into a healthy surplus.
JC
Vote:September 8th, 2009 at 10:22 am
After this recession New Zealand should seriously look at what the effects of its tax regime is –
Do we really want to be discouraging people from earning more income (with income tax) or people from investing in companies (with company tax)? The income tax is pretty bad IMHO, because investment and savings are taxed. Surely as a nation the government should be encouraging people to save, not discouraging them to do so by taxing their efforts and in many cases simply reducing the interest gain to being level with inflation? I also feel that some investment funds could help a bit by actually paying better returns than bank deposits, but the fundamentals remain that the government is taxing something it should be encouraging.
It would be better to eliminate company and income tax, and increase and fix the GST rate (as we don’t need people borrowing tons of money from offshore to buy imported products, and can’t be protectionist as we actually want to encourage trade) and make successive governments stick to that budget. A portion of the GST (say 2%) could be for local bodies, and they should be made to stick to their budget too. Certainly retain petrol tax and RUCs – so long as they actually get spent on roading infrastructure (it is then as close to a user pays scheme as is possible with current mechanisms). And maybe a flat medical levy for a basic public health system (that can be waived if people choose to underwrite their own health or join a private scheme, which will ensure that the public scheme is competitive and transparent – a health SOE!). And that’s pretty much it.
Vote:September 8th, 2009 at 10:37 am
I predicted this on 3 February, on the basis the when you have a strong consensus of economists, they are guaranteed to be wrong. http://vibenna.wordpress.com/2009/02/03/as-certain-as-death-and-taxes/
Vote:September 8th, 2009 at 12:05 pm
beware of economists…bearing predictions..
their track record is a tad ‘dodgy’…to say the least..
http://whoar.co.nz/2009/krugman-how-did-economists-get-it-so-wrong/
phil(whoar.co.nz)
Vote:September 8th, 2009 at 12:22 pm
it’s far from over. Whilst the US keeps printing money, our exporters will continue to feel more and more pain as the USD-NZD exchange rate continues to deteriorate.
Also I understand there is a sh*t load of property about to be dumped on the market, as developers desperate to exit have been waiting for spring to start pushing… so look out for house prices to be suppressed a bit longer as well.
Vote:September 8th, 2009 at 12:24 pm
They could sell Cullens trainset?
It’s worth around a couple of hundred million isn’t it?
Vote:September 8th, 2009 at 5:57 pm
Bollard declared the recession was over last Christmas!
Vote:September 8th, 2009 at 8:31 pm
The Fed Reserve claim the US recession is over.
You have your orders.
Vote:September 8th, 2009 at 9:50 pm
But aren’t we like months behind the economic factors of the US.
Isn’t the worst still catching up to us?
anyway, US citizens aren’t suddenly going to find themselves all in work monday morning.
the recession is over for the banks.
The workers not going to see surplus for a long time. Not this decade anyway.
Vote:September 8th, 2009 at 11:02 pm
The only part of the recession that is over is the part that exists in never never land. You know – the pretend economy that exists in digital format where people trade shit that has no value and make “money” doing it. Pure speculation is driving markets, nothing else. This is the only thing the bailouts have helped – speculators. So the markets that some people see as a sign that things are going well are reading bullshit off the scale. The real economy where stuff gets made and services are provided don’t feature in bailout plans.
The US financial markets have been inflated by nothing but Fed money, everything about their fundamentals is flawed. Highest unemployment in 25 years, low sales, low house prices, It took the central bank nearly 100 years to build a balance sheet of $1 trillion. Under Ben Bernanke, it added another $1 trillion in a matter of months. The Feds way of fixing a problem caused by excess debt and easy credit has been to create more easy credit for people to get into more debt, outstanding!
NZ is a follower, our market today didn’t move because the US are on holiday, nobody knew what to do!!
The Chinese have already started moving away from US money.
Our Reserve Bank saying the recession is over would have been funny if it weren’t so ridiculous. Maybe a small bounce but this recession hasn’t started yet.
Vote:September 9th, 2009 at 9:04 am
Fuck the greed merchants are at it again. From Ian Matthias:
“Since it worked so well the first time around, Wall Street has spawned a new age of securitization — instead of mortgages, this time it’s life insurance policies. Before we spit on this one, here’s how it works:
* A senior with a high-premium life insurance policy, for one reason or another, choses to cash out
* Instead of taking a “cash surrender” directly from the insurance company, the old fella sells his policy to a “life settlement company”
* That company pays him a larger amount than the “cash surrender” would pay, but not nearly the totality of the policy’s value.
* The company keeps paying the premiums. When he kicks the bucket, the company collects the insurance policy.
That’s where the story would normally be over. But now, just like pools of subprime, Alt-A and prime mortgages, investment bankers are crafting securitized pools of these insurance polices. Basically, they pool together a bunch of beneficiaries that will likely die around the same time, buy up their policies from life settlement companies, package them into securities and sell them to investors around the world.
Heh. Really, could the idea of “Wall Street” be any more evil right now? Not only are they rehashing the same schemes that triggered the credit crisis in the first place, but think about it… they will make more money the sooner you die! If policyholders die sooner than expected, there will be no monthly premiums left to pay and the investors get a bigger share of the insurance payout. (And if people like our tech analyst Patrick Cox are right, a sudden surge in life expectancies could blow up these new funds… another crisis! Hooray!)”
Vote:September 10th, 2009 at 8:09 am
Dont confuse “the recession being over” with unemployment – (un)employment is always a lagging indicator.
Vote: