Economic growth indicators appear to have stabilised, with tentative evidence that world commodity prices are providing some good news for New Zealand's major exporter of commodities, the dairy industry.
Business New Zealand yesterday released a detailed economic conditions index which showed the growth and performance indicators were -4 in March, the same as the December quarter, but well up on March last year.
Negative economic growth was experienced for all quarters of 2008, with the biggest drop recorded for the December quarter of 0.9%.
Business NZ economist John Pask said that while low international demand for goods and services was still a major issue for many firms, the extreme pessimism of the last quarter of 2008 and early weeks of 2009 appeared to be lifting, with business and consumer confidence surveys showing slight improvement.
However, the jobs market remained clouded with negative sentiment, unchanged from the last quarter on -4.
Negative sentiment surrounding the labour market was almost universally the case, Mr Pask said.
"Perhaps the one bright spot is that net migration appears to have bottomed out as New Zealand becomes a more attractive destination for expats, given the deep recession in many developed countries."
The arrival of migrants could boost the sagging housing market, and it could also be positive in increasing the number of skilled and experienced people available for work, Mr Pask said.
However, it could also boost the numbers of people looking for work, putting more pressure on expenditure for unemployment and other assistance.
Falling interest and exchange rates, which had acted as buffers for exporters facing significant falls in export prices, had now started picking up, he said.
"Expectations of improved prices for international commodities should see increased exporter profitability over the medium term."
Mr Pask said whether the Reserve Bank lowered the official cash rate further was a moot point.
He said in order to take care of New Zealand's external deficit, interest rates in New Zealand had to remain attractive to overseas investors.
It was not inevitable that lowering the cash rate would automatically result in one-for-one cuts to rates facing households and businesses, Mr Pask said.
The extent of New Zealand's external balance left the country vulnerable.
International investors were repricing risk and long-term credit was becoming more internationally sensitive, he said.
Rating agencies had continually voiced concern about New Zealand's high current account deficit, but that had not been a major concern until recently because the Government had recorded strong operating surpluses.
But the situation had changed, with projections of operating deficits over the next five years.
"This has prompted the Minister of Finance [Bill English] to state that such deficits will not be tolerated, and is putting the potential for future personal tax cuts under serious jeopardy."
There had been talk of delaying payments into the New Zealand Superannuation (Cullen) fund, given the deteriorating Government accounts, Mr Pask said.
Delaying payments would make sense, he said, because it was ludicrous to borrow money and pay interest on that money as a means of storing up reserves.
"It could be likened to householders deciding to invest money in government stock rather than pay off more of their mortgage - it defies logic."
There might be a cause for the Government to continue investing in the Cullen fund.
One reason was it created a degree of certainty that those retiring in 20 years could be assured of receiving superannuation.
Another was that given world stock markets had taken a pounding over the past year, now was a good time to be entering the market to pick up bargains.
But it was not the role of the Government to gamble taxpayers' money on risky investments. Such decisions were best made by individuals and households based on their unique risk profiles, Mr Pask said.
• The ECI is a composite index of 32 indicators, including GDP, export volumes, commodity prices and inflation, debt and confidence figures.
