Saving grace in grim business mood survey

“There’s just no demand out there,” New Zealand Institute of Economic Research’s principal economist Shamubeel Eaqub said this morning with an apologetic shrug of his shoulders.

“Sorry to be so disappointing.”

Mr Eaquab was genuinely downcast by the institute’s quarterly survey of business opinion, which was much more pessimistic than he or almost any other economist expected.

He raised the risk of a “double dip” recession only to say he does not think it likely – but added the risks are now higher than they were.

The key is allied to the lack of demand Mr Eaqub referred to – and it is a case of every silver lining having its cloud.

One of the main causes of the faltering business mood is still that New Zealanders are keeping their wallets firmly shut.

Last week’s update of credit figures, released by the Reserve Bank, showed that aggregate private sector borrowing fell again in August.

Most people who are getting any extra income are using it to pay off debt.

Any rise in spending to beat the GST rise has been barely visible: not only that, the NZIER survey shows most firms believe the slack demand gives them little room to raise prices anyway.

It also means the extra income from tax cuts will probably be mostly saved and/or used to pay off debt.

Once again, the shock of the financial crisis of 2008-09 and the poor prospects for the country’s property market over the next few years has caused many New Zealanders to re-examine just how vulnerable they are.

That is a good thing, and long overdue.

But the unwinding of those vulnerabilities, both as individuals and as a country, will not happen quickly.

It took us a generation to build them up – admittedly with some major acceleration over the past decade from levels of medium-to-high risk to levels of sheer recklessness.

It will take a while to wind them back.

That said, not all of the economy is grim. The tradeable sector is still holding up – in fact, the terms of trade are better than they have been for a generation.

If that holds up – and we should have learned by now we cannot take it for granted any good economic news is going to continue – we should be able to come through the current economic bad patch in better shape than we were in when we went into it.