One in three chance of a further crash

August 31st, 2010 at 8:12 am by David Farrar

The Herald reports:

There is still a one-in-three chance of another crash, says Standard and Poor’s global chief economist David Wyss.

“The recession is over but it is a half-speed recovery,” he told a Breakfast With the Economists gathering in Auckland yesterday.

“We have now had four quarters of growth in all the major economies but we are crawling out of recession. And a slow recovery is a fragile recovery.”

Among the risks was the perennial one of another oil shock emanating from the Middle East.

“Another is the financial markets. Europe seems to be settling down but there is still a lot of debt in what we are now supposed to call the ‘olive belt.”‘

I’m surprised he only rates it one in three. I reckon it might even be one in two when you look at how weak the US recovery is also. The saving grace may be Asia.

Herald on Govt’s first year

October 31st, 2009 at 9:12 am by David Farrar

This weekend it is the Herald’s turn to do a big feature on the Government’s first year in office. Multiple article to quote.

John Armstrong starts with what I think is the most important aspect:

The first Herald-DigiPoll survey since last year’s election shows close to 80 per cent of respondents rated the Government’s performance in dealing with the effect of the global recession on New Zealand as good, very good or excellent.

Barely 20 per cent rated the Government’s response to the recession as not good or poor.

And this is the major issue voters have focused on. Not use of urgency, not the Super City, not RWC broadcasting, not any of the numerous beltway issues. Not to say handling of those issues is not worthy of focus, but they are not critical to the average voter.

In another article, Armstrong reviews Key himself:

Key’s sheer ordinariness has fooled opponents into making first impression assumptions that there is little substance behind the confident, smiley face he presents to the world.

Key would not claim to be an intellectual. But he is very bright. Those who have worked closely with him speak of a capacity to absorb mountains of information and a laser-like capacity to focus on what needs to be done.

I would almost call Key a data sponge. He loves soaking up information from numerous sources, and reflecting on it. He is constantly thinking, and analysing.

He is anything but ordinary. The chief executive of New Zealand Incorporated is nothing short of a political phenomenon.

As one Beehive operative of long experience puts it, Key is rewriting the rules of New Zealand politics. That is a sweeping statement. But it goes some way to explaining why public support for National – confirmed in today’s Herald-DigiPoll survey – has climbed to unprecedented highs for a ruling party in its first year of government and, just as crucially, continues to remain at that level.

The challenge for the Government is to build its own brand to complement Key’s strong brand.

Key cites his Government’s fulfillment of manifesto commitments and steering the country through and (he hopes) out of economic recession as crucial in consolidating support for his party. Cabinet ministers readily acknowledge, however, that National’s post-election dream run is overwhelmingly down to Key’s strong rapport with voters – especially females who shunned National in the past.

It is rare for a centre-right party to do well with female voters.

Labour Party insiders grudgingly agree, but with a subtle twist in the language: National’s popularity rests on Key’s popularity. When the latter starts to fade, the former will quickly evaporate.

As I said above, I agree with them that the popularity is largely Key. But that may change over time, as other Ministers become better known. Also the other Ministers have generally been doing quite well in their portfolios – what is lacking is more a coherent all of Government brand.

Or so Labour prays. Labour, however, has made a bad habit of underestimating Key.

And they still are.

One of the principal ways he is seen to be rewriting the rules is by applying a “will it work” test to policy proposals rather than first asking whether they sit comfortably with National Party ideology. Key’s willingness to search for ideas outside conventional boundaries is in tune with an electorate less hung-up about ideology than in the 1980s and 1990s.

Key has centre-right values and instincts, but he sees them as a guide not a straitjacket.

This may irk some colleagues who see the vast gap between National and Labour in the polls as a rare chance for National to adopt a more radical and right-leaning prescription. …

Key seems to have no difficulty with either proposition. However, he is extremely wary of breaching National’s 2008 manifesto. He believes it is vital that voters feel confident they can trust National in government.

I’m one of those who want to see the Government be more bold, and indeed use that vast poll gap while we have it. But it isn’t about being more “right”, it is about fighting battles that are important to our future such as tax reform, the union stranglehold in education, state sector reform etc. But I agree any reform has to be consistent with the election manifesto. But there are plenty of areas where initiatives were not ruled in or out.

Dunne also noted that “references to what happened in the 1990s, let alone what side one was on during the Springbok Tour or, heaven forbid, the Vietnam War are utterly irrelevant to the values of this new generation, as Helen Clark found out dramatically last year, and Phil Goff is continuing to find out”.

The battles of yesterday.

Though Goff is an effective communicator, Key operates on another level. Unlike some politicians, he never talks down to people. He instead likes to disarm his audiences – no matter how big or small – by kicking off proceedings with a witty anecdote. More often than not, the joke is at his own expense. And deliberately so. The self-deprecation helps to break the ice.

A typical example was a recent meeting with youngsters at a riding school. Praising their ambition to represent New Zealand in show-jumping at the 2016 Olympics. Key turned to their proud parents, telling them “and you’ll be able to watch it all on Maori television”.

Heh. More seriously I recommend anyone who has not seen Key do a Q&A, should attend one of his meetings. He really engages with the audience, and as John A says, never talking down.

Yet, a year on from the election, it is still difficult to discern the direction in which the Government is going. Presumably it knows, because it is a very busy Government. It would be useful if it told the rest of us.

If Key has a major flaw, it is in not drawing the big picture often enough.

I agree. I don’t think it has mattered much this year, for it has been a crisis year – fighting the recession. But as that fades as an issue, people are going to want to hear more about closing (or at least slowing) the gao with Australia.

Key’s power is at its zenith. But how does he intend to use it? What legacy does he want to leave? The next 12 months will be true measure of his prime ministership, judged on what is done to get his promised “step change”in New Zealand’s economic growth.

I think the 2010 budget is very important, even more so that the 2011 budget.

Claire Trevett reports 78% of NZers back the series of cycleways.

Patrick Gower talks to Rodney Hide about working with John Key.

John Armstrong also reviews Bill English.

Claire Trevett talks to Tariana Turia:

Do you still have that level of trust in National?

Yes. What I’ve enjoyed the most is our ability to be upfront with one another and be straightforward on issues. I have never found that they’ve said one thing to me in a meeting and done another.

I recall what John Tamihere said about how Cullen used to treat coalition partners!

Have there been difficult choices?

When you can see value in what is being proposed but there’s always downsides to it. We’ve had to think really carefully about ACC, the Emissions Trading Scheme, and adult education courses.

For example with the ETS, it’s been difficult to try to balance the interests of iwi – whose major focus is forestry, fishing and farming – when on the other hand we’ve got really poor communities who are going to have to pay and they’re not the ones causing the problems.

There are very few policies that don’t involve balancing the trade-offs.

Jon Johannsson talks leadership:

I believe we are watching an unusual prime ministership take shape. Key’s skillset is vastly different from what we’ve seen before. We’d possibly have to go all the way back to the entrepreneurial Julius Vogel in the 1870s to find an apt comparison. Vogel put in vital and much-needed infrastructure to connect New Zealanders with each other and then with the rest of the world. Vogel’s legacy is a hugely significant one in our politics. If Key could affect a 21st century equivalent – meaning nothing short of major structural transformation to better position New Zealand during its transition to an information-age economy – his future legacy would be assured.

And Key has pushed hard on infrastructure. But the structural transformation is not there – however stuff like the fibre to the home initiative may be part of that.

Key has also grasped that our politics is going through a non-ideological phase, which explains why much of the criticism of his Government’s performance has come from ideologues on either side of the spectrum. His acceptance of much of Labour’s policy inheritance reinforces this judgment. Keeping its promises, which National has largely done, thereby establishing long-term trust with the electorate, has given Key the prerequisite platform needed for greater freedom of action in the future.

Absolutely. You have to earn trust, to then have greater freedom of action.

But to return to where I began, Key’s larger context; his political vision has been quite parsimonious in my view. There is no overarching narrative that tells us where Key intends taking us or what policy mix will best maximise our future progress and choices.

Transforming education (surely the best incubator for our future economic prosperity), leading our democracy (think: the electoral referendum, the Treaty, republicanism), and how to best protect water, our most valuable strategic resource, are being managed, not led, in an entirely ad-hoc fashion.

I think this is fair criticism.

Finally John Roughan:

The most impressive member of the Cabinet is a complete newcomer, Steven Joyce.

He is doing the infrastructure projects, notably the duplicate broadband network, as well as those in his primary portfolio, transport.

He’s done the little things, like the car cellphone ban on which the previous government dithered for years, and the big things like the Waterview connection, which I thought was wrong but he put me right.

I remarked to the Dominion Post for their review that I thought John Key’s best decision was probably appointing Steven Joyce to such critical portfolios. The fibre rollout was Key’s signature initiative, and speeding up infrastructure investment also a iconic issue for Key. And Steven indeed is no ditherer.

Of course I still think he is wrong on the cellphone ban!

The recession is over

September 23rd, 2009 at 12:24 pm by David Farrar

Just. Stats have growth of 0.1% for the June 2009 quarter. At the beginning of the year the assumption was we would be in recession for all four quarters of 2009.

So the recession lasted five quarters – four of them in 2008 and one quarter in 2009.  Of course unemployment will not turn about for some time, as firms that have been losing money and laying off staff will want many months of growth before they are confident to expand.

And the US may still implode, and drag other countries down again.

The deficit in the Crown accounts will still be with us for some time, but with an early exit from the recession it is possible the Half Year Fiscal Update in December will be less doom and gloom than in the budget.

Is the recession over?

September 8th, 2009 at 7:38 am by David Farrar

The 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.

Not the Great Depression

May 29th, 2009 at 9:04 am by David Farrar


This graph was e-mailed to me, originally shown on Andrew Sullivan’s blog. It does put things into perspective.  It is presumably about the US economy.

Surviving as a Small Business

February 27th, 2009 at 2:57 pm by David Farrar

Over at Public Address, there are guest posts and discussions on surviving the recession as a small business.

The first post is by Scoop’s Alastair Thompson and a second one by Xero’s Rod Drury. Xero are sponsoring the discussion about business survival strategies, and advertising its existence on this blog, and others.

We also had a discussion at Foo Camp (I’ll explain later what that is) about business surivival strategies, and it is fascinating how many good and practical ideas there might be out there. So if you have ideas, or are interested in the area, go on over to Public Address and join the conversation.

The recession gets worse

December 23rd, 2008 at 11:28 am by David Farrar

There is now nothing “technical” recession. In the first three quarters of Labour’s final year in office, the economy shrunk 0.9%, with the third quarter contraction being a large 0.4%.

Agriculture is keeping us going with 6% growth last quarter. However fishing and forestry declined by 6.6% and construction by 1.2%. Govt Admin went up 0.6% however!

Will the 4th quarter also extend the recession? I’d say it probably will.

With no economic growth, less tax is paid. With less tax revenue, there is less money for stuff such as schools and hospitals. Remember this the next time the Greens rail against economic growth.

Ralston on a tough start

November 30th, 2008 at 10:24 am by David Farrar

Bill Ralston writes:

Message to John Key and his new Government: No pressure.

Well, just a global financial market collapse, a deepening recession, a growing deficit, a crisis meeting with many of the world’s top leaders, shrinking commodity prices and a body blow to our other big export earner – the tourist industry – from the British departure tax.

Throw in a major terror attack overseas to further destabilise the planet and the crash of the Air New Zealand airbus in Europe and you get the toughest start any Government here has had.

The recession especially is of grave concern. Previous recessions have been for less than a year, while this recession may last two or even more years.

Kerre’s conversion is complete

November 2nd, 2008 at 1:00 pm by David Farrar

I think we can declare Kerre Woodham’s conversion to the dark side complete. She has shown primising signs before of having abandoned latte liberal or Chardonnay socialist leanings, but her latest column qualifies her for full entry. I will arrange the initiation ceremony the next time the High Council meets.

Kerre writes:

Can anybody explain why we need these redundancy packages? Will we always have them? Or do we only get redundancy packages when recessions fall in election years?

Kerre has it in one.

One man told me it was all the banks’ fault for luring people into mortgages, so the Government should pay if people couldn’t afford to pay the bills when times got tough.

For a start, no bank staff pointed guns at homeowners and insisted they take out mortgages. People did that of their own volition.

And if you’d listened to your grandparents, they would have told you not to borrow more than you could afford to pay back.

All good points.

And for another, it’s not “the Government” that will be giving you money. It’s me. And your friends and neighbours.

The Government is not a money machine. It’s an institution that is funded by taxes taken from all of us.

And the final proof of the conversion to the dark side – the realisation that the money the Governments gives out is not their money, but your money.

Where does personal responsibility come into it? I’ve earned low wages and I’ve earned high, and I’ve learned you cut your cloth according to your income.

Heresy, heresy to the left.

One of the reasons for this worldwide recession is that people have taken on more debt than they could afford to give themselves a better lifestyle.

What the recession is doing is shaking everything and everyone up, and restoring a natural order and balance. But that won’t happen if political parties set about subverting the sequence.

This column really gets a 10/10. Not only emphasises taxpayers, and individual responsibility but also talks about long-term effects of short-term interventions. Has Kerre been doing an economics degree on the sly?

Labour’s package is particularly loopy. If a person is made redundant, they will get the equivalent of the unemployment benefit for up to 13 weeks even if their spouse or spouse equivalent is on $200,000 a year.

How does that make sense?

It is about as sensible as giving welfare through Working for Families to couples earning $120,000.

National’s is targeted at lower income earners and builds on the Working for Families scheme and is marginally more practical _ if you agree that these redundancy packages are necessary. And I don’t.

I have no problem with taxes going to people who need a bit of extra help. Who are working low-wage jobs and looking after their families and who don’t have a lot to come and go on.

But we have programmes targeting those people already. I see absolutely no point in flinging money at people who have made poor economic choices or who don’t really need it. But then I’m not a politician looking to get elected.

Kerre’s membership will be approved by acclamation I predict. You have done well young Padawan.

A second recession?

October 28th, 2008 at 7:03 am by David Farrar

Infometrics is predicting a second recesson in 2009!

New Zealand has been in recessions since the end of 2007, with negative growth in Q1 and Q2 2008. It is widely expected that Q3 will also be negative.

So Infometrics seem to be saying Q4 might be marginally positive, but then in 2009 Q1 and Q2 will be negative again.

If they are right, the decade of deficits just got worse.

Cullen talks depression not recession

October 15th, 2008 at 11:00 am by David Farrar

Does Dr Cullen know something we don’t?

The Dom Post reports:

Finance spokesman Michael Cullen said: “The Government is not going to allow the economy to slip into a depression because it has some fear of lifting its short-term borrowing position. That is not sensible fiscal economic management.”

The Government is already facing a debt blowout after the Treasury forecast a decade of deficits.

So Dr Cullen is worried about a full scale depression, yet he is handing out free cash to students.

But Dr Cullen said he would borrow more if necessary to fund road, infrastructure, forestry, housing and rail projects, including expanding the electrified network to Auckland’s North Shore and a rail tunnel under Waitemata Harbour.

His plan marks a U-turn from Labour’s scathing attacks on National’s plan to borrow more to spend on infrastructure.

In August, Prime Minister Helen Clark said: “I just think it’s mind-bogglingly stupid. You go out and borrow at a time when the international markets are in crisis.”

National pleding to borrow more when debt was at 20% of GDP was called reckless and stupid, and now Labour says that increased borrowing is the answer with debt projected to hit 30% of GDP.

Which Dr Cullen should we listen to?

Is this the biggest economic flip-flop ever?

The recession is now official

September 26th, 2008 at 4:34 pm by David Farrar

Stats NZ confirmed today the New Zealand is in recession for the first time since the Asian crisis in 1998.

The economy in the last two quarters is around $300 million smaller than the last quarter of 2007.

But the worst may yet be to come. The second quarter drop was 0.2%. And expectations for the third quarter are now as bad as a 0.5% drop. That would be a 1% drop over nine months.

NZIER calls stagflation

July 8th, 2008 at 11:57 am by David Farrar

Stagflation is the nightmare of the 70s – high inflation and negative economic growth.

NZIER has just put out its quarterly survey of business opinion.

Statistics New Zealand recently reported that real Gross Domestic Product (GDP) fell by 0.3% in the March 2008 quarter. Indicators of domestic trading activity from the latest QSBO suggest economic activity declined further in the June quarter and is likely to decline again in the September quarter which will make it three quarters of negative economic growth in a row.

That takes it beyond a technical recession to a full recession. They says firms are more negative abotu their own activity and their trading activity since 1998 and 1982 respectively.

Now what about inflation:

The net balance of firms intending to increase selling prices in the next three months has increased. The balance was 45% in the March survey and 49% in the June survey. The 49% figure is the highest since March 1987. The net balance expecting an increase in costs has increased from 62% in March to 71% in June. The 71% figure is the highest since December 1986.

This is why their press release refers to stagflation.

Blog Bits

April 10th, 2008 at 2:26 pm by David Farrar

No Right Turn blogs that he believes the NZ First advertisements do breach the Electoral Finance Act as “a reasonable person would regard it as an encouragement to vote for NZ First”. I agree. As Idiot/Savant says it is not a survey, it lays out policy and encourages approval of it.

Poneke has more on the BBC story on climate change which got modified. The reporter denied he did it under pressure, but an activist has blogged she successfully pressured him to change it.

The visible hand in economics looks at fixed vs floating exchange rates.

The DAFT Party has a solution for China over Tibet. It is to rename China to Tibet, and declare they are all Tibetians. The PRC Government should see the sense of this now they are running a market economy – you replace a tarnished brand with a more positive brand!

Bernard Hickey has video and a blog post on Alan Bollard’s speech suggesting we are talking ourselves into a recession. Bernard says we’re not, and if we do have a recession, it is because we deserve it! Them’s fighting words! It’s a lengthy excellent post with many graphs.

Business Confidence crashing

April 1st, 2008 at 12:48 pm by David Farrar

The National Bank has released its latest monthly business confidence results and it is not pretty:

This month’s National Bank business confidence survey makes for grim reading. A net 58 percent of businesses expect business conditions to deteriorate over the coming year. This is down from 44 percent reported last month. Confidence is weaker across all the five major subgroups: retailing, manufacturing, agriculture, construction and services.

Firm’s expectations towards their own business has now turned negative, the first time since early 2006. A net 6 percent of businesses expect a deterioration in their own business over the coming year. Firm’s own activity expectations are seldom negative. Negative reads in firm’s own activity expectations have only been recorded 12 times in the 20-year history of the survey. Five of these were right at the start of the survey in 1988, as the 1987 crash washed through. The last time we saw firm’s own activity expectations this weak was in 1991.

Also National Bank needs to be a finalist for the 2008 spin awards with this line:

While recessionary fears are percolating, we prefer to characterise such challenging times as entering a stage of deferred achievement.

Ha. Watch Dr Cullen grab this line. It is not a recession, just a period of deferred growth 🙂

Economist disagree – shock horror

March 19th, 2008 at 10:33 am by David Farrar

BERL have come out and said they disagree with the BNZ about NZ going into recession.

It reminds me of the three economists having an archery contest. The first one has an arrow hit a meter to the left of the bullseye, the second one then goes and hits a meter to the right of the bullseye and the third one yells out “Bullseye” 🙂

Less common is the different stances of the PM and Finance Minister.  Helen was all “the economy is strong, no problems” while Cullen admitted NZ may have a small recession.

Hickey on Wall Street panic

March 18th, 2008 at 5:59 pm by David Farrar

Bernard Hickey blogs on what the latest Wall Street panic means for us, and it isn’t pretty.

JPMorgan Chase has moved to purchase Bear Sterns, but for only US$2 a share, which is a total value of just $236 million. On March the 14th the shares were trading for $30 a share, which valued the company at US$3.54 billion. A year ago they were worth $10 billion. Their annual turnover is $16.2 billion so $236 million is almost saying they are worthless.


I got e-mailed this graphic from a contact who got it from a staffer at the International Monetary Fund.  I think it may have been in the Washington Post, and it is a useful guide to what happened.

Anyway back to Bernard:

The news coming out of Wall St this morning is simply shocking and is something every New Zealander should understand and care about.

Put simply, panic and fear rule in the world’s financial capitals right now and it will cost us all in one way or another and sooner or later. …

Translation: This is big, don’t think it won’t affect you.

In the last five years since our debt-fuelled consumption and housing boom started in January 2003, we have borrowed around NZ$39.6 billion from foreign investors.

Translation: We owe a lot of money overseas and are vulnerable to anything that may impact what those investors do.

The moment we lose the confidence of these housewives and dentists is the moment our interest rates rise and our currency collapses. This has been referred to as the Uridashi Tsunami. We know it’s coming. We just don’t know when.

Translation: Start getting off the beach now, not once you can see the tsunami about to hit.

All this means that wholesale interest rates are likely to keep rising. That means mortgage rates are likely to keep rising. Maybe not this week, but maybe next month and the month after that. Oil prices are likely to keep rising because they rise when the US dollar falls. The Fed’s desperate moves to pump money into the markets will simply increase inflationary pressures globally. Petrol and food prices are likely to rise further.

The squeeze on disposable incomes for anyone with a big mortgage will get tighter and tighter.  Our economy will slow and may even fall into a recession. That is stagflation.

Translation: We may get the worse of both worlds. High interest rates, high prices and low economic growth.

Bear Sterns

March 16th, 2008 at 3:57 pm by David Farrar

The Fed’s bailing out of Bear Sterns is a sign of how bad things could get. Bear Sterms is America’s 5th largest bank, and if they had gone under the consequences would have been massive. They still might be.

For now it probably just means higher mortgage rates in NZ.

The real problems will be if the US and Europe go into recession. NZ could be hit with the worse of both worlds – part of a global recession – but still having high interest rates due to inflationary pressures.

BNZ warns of recessions

March 15th, 2008 at 2:47 pm by David Farrar

The BNZ has made a gutsy call and says:

The BNZ says there is a greater than even chance that a recession will happen in the second half of the year.

“We have become victims of an almost perfect storm,” Mr Toplis said.

It has resulted in New Zealand businesses and consumers being pummelled by a combination of a global credit crisis, falling house prices, record fuel costs, a strong Kiwi dollar, high interest rates and the effects of the drought.

He warns that indicators such as the rapidly slowing housing market are just precursors and the credit crisis is only beginning to be felt by the wider economy.

Households are struggling under the weight of higher mortgage repayments and businesses are faced with rising debt-servicing costs as banks pay more to borrow overseas.

Household disposable income will be eroded by rising costs for food, electricity and rates, Mr Toplis says.

Transport companies and supermarkets say record fuel costs will have to be passed on to consumers.

“The economy is now very poorly and may well stay that way for some time to come,” Mr Toplis says.

Some of the factors are local, but the global economy isn’t looking too flash either.