Opinion: The economy has the potential to surprise everybody with how fast it grows this year - but we need rain

Perhaps those new ASB adverts mildly chastising Kiwis for understating achievements are on to something.

While everybody was quick to carp about the woes befalling the economy after the Global Financial Crisis and then subsequent setbacks, the apparent upswing in economic activity now occurring seems to be being met phlegmatically; a sort of general attitude of: “Yeah, it’s better, but about time, eh.”

True, it has been a while since things in the garden here were rosy and perhaps everybody is just being cautious.

But the fact is, good news is breaking out just about everywhere in the economy.

Yes, unemployment remains stubbornly high according to official figures – and frankly those are best consumed with a dash of salt. And yes, the Kiwi dollar remains stubbornly high – though if you are thinking of leaping off to the US or Britain for a holiday that’s a pretty good thing.

But shifting those negatives to one side for a minute, consider some of the good developments revealed just in the past month or so and in no particular order of importance:

• ANZ’s February business confidence survey hit a 19-month high, with a net 38% of businesses surveyed expecting improved prospects for their own businesses in the next year.
• Record numbers of people (a net 74%) in the Reserve Bank’s latest survey of household expectations believed house prices would rise in the next year.
• ANZ’s quarterly regional survey showed for the first time in eight years that all parts of the country reported increases in economic activity.
• Retail sales volumes showed their strongest quarterly increase in six years.
• Real Estates Institute of New Zealand figures showed that house sales in January were up 21% compared with a year earlier. Since the 2009 low-point New Zealand’s house prices have risen 16%, with those in Auckland up 27%.
• Building consents for homes (excluding apartments) showed a 9.6% seasonally-adjusted rise in January.
• Real building work put in place rose 1.8% in the December quarter, following a 9.8% rise in the September quarter.
• Commercial motor vehicle registrations in February were up 37% on the same time a year ago.
• The annual increase in home lending hit a four-year high in January. And though that’s not necessarily a good thing, the extra NZ$952 million of mortgage lending in the month indicated the level of growing confidence about the housing market.
• Funds held under management for Kiwis surged by 12.9% to NZ$81.6 billion in 2012, which is the biggest rise in a least recent history. KiwiSaver funds climbed nearly NZ$4 billion to NZ$15.4 billion.
• Term deposits held by Kiwis were hovering about the NZ$110 billion level by the end of 2012, with some NZ$80 billion of that held in NZ$100,000 and above chunks.
• Dairy prices surged 10.4% in the latest global auction, leading economists to revise upwards Fonterra’s payouts for this year and next. That of course is to some extent bad news masquerading as good news because the drought, which will cost particularly North Island farmers, is helping to push the global prices up – with New Zealand being the leading dairy exporter.
• The ANZ Roy Morgan Consumer Confidence Survey hit a 32-month high in February.

And there’s probably some other things I haven’t thought of.

It all looks like an economy seriously starting to find its feet, an economy that perhaps has the potential to surprise people this year with how fast it grows.

Official GDP figures for the December quarter are not due out till March 21. The Reserve Bank’s last official forecast for the figure was 0.4%, which looks woefully light. Economists from the commercial banks have been thinking more of 0.7-0.8%, though a few of these have started twitching in recent days, suggesting there is “upside risk”.

From where this observer is sitting there seems to be considerable “upside risk” to those quarterly figures.

But, there is always a but, isn't there? And the latest is a considerable one. If it doesn't rain soon we are in trouble. The drought is already hitting farmers and when the farmers get hit, we all get hit because the impact of less rural spending flows through the entire economy.

BNZ economist Doug Steel said yesterday that the prolonged and widespread 2007-09 drought knocked overall GDP down by around 1.5%, with about 1% coming from the direct hit to agriculture and the remainder the flow-on effects from the likes of farmers curbing discretionary spending. He reckons the impact of this year's drought could easily be 1% of GDP this time around.

Well, let us hope not. After all we've been through in the past few years it would be a kind of grim irony if the economy was really starting to tick again, only for a matter completely out of anybody's control to dash the hopes. After the recent false dawns the economy has had, we don't need another.

Perhaps the best thing everybody could do right now is their own version of a rain dance. And then later in the year when the drought’s becoming a distant memory we can all take advantage of that flying kiwi dollar with a nice overseas trip, paid for out of the profits from our Mighty River Power shares.