Now I have to admit that I do not find his call ridiculous for a few reasons:
- Part of his job is to prevent wholesale declines in consumer and business confidence – as a result he has to be relatively positive (although not unrealistic)
- The Bank has slashed interest rates and says it will continue to do so to support economic activity – as a result he is really saying “as a result of our actions the recession in NZ is over
- We have just come out of a drought and moved away from record petrol prices – as a result our economy is also experiencing two positive shocks as well as the myriad of problems. If we had not had a drought, I have no doubt that we wouldn’t have had a recession earlier in the year and we would have experienced a “technical” one now – even though we are in a better situation.
Think of the third point this way. A drought might knock activity down by 1% from where it would have been. Coming out of the drought, activity should rise 1%. The RBNZ is saying that the current slowdown will cancel out this increase – it is not saying that we are back to normal (which would involve a jump back to trend growth).
Overall, I would guess that interest rates will take too long to have an impact, especially with the dysfunction in credit markets, and we will have a sharp contraction in March – but if we have a positive December (which is likely with collapsing fuel prices) Alan Bollard will still be right, the technical recession would have finished in September!
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