The first signs of recovery have emerged. NZ’s economic (though not climatic) winter is ending. Reserve Bank Governor Alan Bollard believes we have avoided a repeat of the Great Depression. Importantly, he thinks NZ is likely to start recovering ahead of the pack. Westpac chief economist Brendon O’Donovan reinforces the Bollard message, saying if it weren’t for swine flu, “we would say the recession has already ended.” O’Donovan warns rising unemployment and weak exports will keep the recovery modest initially. “The business situation will feel miserable for a while yet.”

Bollard is concerned households will resume their “borrow and spend” folly before they pay down debt. NZ’s recovery will be more sustainable if the household sector saves more, and investment is lifted in the economy’s productive base. A resurgence of house price inflation and easy credit are “untenable.” Bollard says NZ must seize the opportunity to re-balance the economy. Stronger world demand and a weaker NZ dollar will be the signal for investment to move to the tradeable sector. Financial markets currently focused on a US dollar correction need to be more “discriminating” about NZ. A priority is for NZ banks to diversify their funding sources more and increase the proportion of stable funding sources.

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