Beware the economic 'croc'

ANZ economists caution against complacency as the NZ economy strengthens

10th Feb 14, 2:47pm by David Hargreaves

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ANZ economists are warning against what they term the 'croc' effect, which they say could undermine the promising economic recovery.

In their weekly "Market Focus" the economists said that in the wake of further encouraging economic statistics released last week they were left with little doubt about prospects for the New Zealand economy.

"We’re into an expansion with real legs," they said.

But they said that amongst "all the hurly-burly as to what could upset the apple-cart" they were eying the potential for complacency.

"Economies are notorious for following a four-stage process we term the CROC: calamity; response; opportunity; and complacency, which invariably leads back to calamity," they said.

"...All of a sudden, the commentary towards New Zealand has taken on a bullet-proof persona. Good times are here; it’s becoming more and more prevalent in general commentary.

"That’s true; we’re set for strong growth. But the good times mask frictions and tensions. The economy is only marginally larger on a per capita basis than it was in 2008," the economists said.

"The so-called “rock-star” economy – which has become flavour of the month – refers to New Zealand’s prospects in a relative and not an absolute sense Given everyone else’s issues, it doesn’t take much to be top of the pops, and remember, New Zealand was well down the charts in 2008-2012, so is playing some catch-up."

The economists said that New Zealand had some "world class" statistics, "but they are at the bottom and not the top".

"Net external debt is still gargantuan; our household savings rate is poor; relative productivity and income levels are low in relation to OECD averages."

The economists stressed that they were not intending to be a "party-pooper", but rather to remind people that New Zealand lost so much ground from 1970 onward, that "it’ll be a long journey playing catch-up".

"And catch-up and complacency are oxymorons in the economic growth stakes."

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6 Comments

by MikeM | 10th Feb 14, 4:58pm 1392004718

I can't believe it, an honest and realistic assessment of our economy from BANK economists. I must be dreaming. They've even acknowleged our structural shortcomings. Perhaps I should print and frame this article?

by MikeM | 10th Feb 14, 5:51pm 1392007882

The way I look at it Hugh, is that if nothing is actively done to re-balance, re-balancing will occur automatically whether the pushers of the status quo like it or not.

by Grant A | 10th Feb 14, 5:50pm 1392007848

Mike - having in the past sat and listened to economists debating amongst themselves what their outlook for the economy was going to be, they all discuss this sort of thing intensely. I think the mistake that they make is in then focusing all of their communications to the public on explaining that view rather than explaining the balance of risks that they've considered. I think more of that sort of balance would be good because its clear that some people don't realise that economists are fully aware of both sides of the equation and therefore many underate what is communicated thinking they know something economists don't. They certainly don't always get it right, but its is at times hotly debated in good economic teams

by MikeM | 10th Feb 14, 6:01pm 1392008514

I'm sure most economists are well versed on all aspects of economies but I've noticed that economists from varying institutions tend to have a certain slant on how they communicate to the public. Banks, in particular, tend to be heavy on cyclical/surface conditions and weaker on structural. That's why I was pleasantly surprised by the above. If, however, they are reporting on foreign economies they tend to be more structurally focused and a little more balanced, in my opinion. Perhaps because they don't trade in some of those economies?

by Crazy Horse | 11th Feb 14, 12:54pm 1392076479

Instead of all the banks focusing on the residential housing mortgage book, why don't they focus on the financing of R&D, new ventures that promote new products and increase the productivity and intelligence of the country - instead of a country that spends so much time, creating accounting and legal "vehicles" to dodge tax !!

Picture the scenario .... a 30 year old walks into the bank looking to finance a very lucrative venture ...what is the FIRST question a bank asks ? ...do you own a property ?

If you say "YES" great, "would you like fries with that" (cash incentive, legal fees paid etc) ...however if the answer is 'NO" well get back to your job that hasn't had an pay increase in 7 years !!

Cue Grant A to provide a comeback to protect the banks ......and I won't take the lack of security for the loan as an answer. The banks have enough in the coffers to take some risks at some time ..... (anyway the taxpayer will bail them out)

Ridiculous really and in the meantime the "rock star" economy only applies to a few select groups, doesn't it Mr Bagrie ?

by MikeM | 11th Feb 14, 1:36pm 1392078997

Yes I think you are right in respect to "business" lending also being backed by property,especially SMEs. The issue is usually a lack of tangible assets. But if my long term outlook proves to be correct, the banking industry of the future may need to consider entrepreneurship as means of expansion once the household credit cash cow finally runs out of puff.