OPINION - Pattrick Smellie: The chicken roosts

By Pattrick Smellie

Friday 6th March 2009

Someone across the valley from me has bought a chicken. I know this because there never used to be early morning crowing.

I've added this to the list of signs of the recession biting - full buses, spouses seen agreeing that "perhaps that is a bit expensive," packing my own lunch, and moneyed friends at the cricket talking in hushed tones about the destruction they're seeing among highly geared wealthy friends in Auckland.

"He'd borrowed to buy that Porsche. It made no sense at all."

However, it remains as difficult as ever really to know what the heck is going to happen.

What the heck is going on is clear enough - sheer, global financial chaos and wealth destruction.

Here at Businesswire, we write a morning wrap of everything that happened overseas overnight. Every morning it's the same - an unheard of drop in Japanese exports, a thumpingly bad quarter for the US economy, another brace of top banking brands crawling to governments for bail-outs, another jaw-dropping slump in the Dow.

We have no way in New Zealand to know what this will do to us for sure, other than knowing it will be ugly everywhere, and just a matter of how ugly here.

One thing we can control, up to a point, is how we feel about it all. The role of "animal spirits" will only count for so much in a roller-coaster ride like this one, but it IS one of the few things we can control ourselves.

The options are simple: panic or pretend an analytical calm that belies the chaotic circumstances.

BNZ chief economist Tony Alexander struck a particularly alarming note in recent advice to businesses against trying to be clever and pick the bottom of the recession.

"There is a world of difference between missing a growth/profit opportunity and surviving to tell the tale, and taking a gamble and losing when people like ourselves are telling you the risk is completely unknown (my emphasis)," squawked Alexander, walking a fine line between prudence and a Chicken Licken impersonation.

In the last couple of weeks, two other respected observers of the New Zealand economy have demonstrated just how far that pendulum can swing among the "experts" as well.

In the "Sky-Is-Falling-Sell-Sky Corner" is the New Zealand Institute, an Auckland University think-tank. Their recent report, "The Emperor Has No Clothes", started all the talk of 11% unemployment.

In the "Patriot's Corner" is the New Zealand Institute of Economic Research, sobre economists all, quietly hoping that we'll all do the right thing, hang onto jobs for as long as possible and muddle through to 2013 with very weak growth, and then come right.

Neither of them knows for sure.

NZIER takes a Pollyanna view that local employers and their staff will do what they can to keep jobs open and avoid rehiring costs when the recovery comes.

Employers can still well remember what a tight labour market means and may try harder to keep the good people they've managed to attract.

For that to happen, though, the recovery has to come some time like the end of this year, rather the end of next or some time in 2011. The longer it takes, the more the NZ Institute prediction starts looking possible.

Both forecasters indicate they don't quite believe themselves. The NZ Institute's 11% unemployment is based on extrapolation of research into the impacts of previous downturns that were driven by financial market system failures.

"This simple extrapolation may be misleading," the Institute says.

Likewise, NZIER hedges its bet that unemployment won't go much above 6% - which would be a heroic outcome - and was conceding at its briefing this week that the recent very weak American economic statistics were already threatening that outcome.

Other than that, both sets of crystal ball-gazers agree on the big drivers for whatever happens in the end. New Zealand is too dependent on foreign savers to prop up our financial system, there will be a deep recession in most of the OECD which might start turning late this year. They both say we should expect a collapse in foreign tourism receipts and further house price pain.

They differ materially on the outlook for Asia.

NZIER sees Asian economies slowing down, with China never going below 6% annual growth in the next four years and Malaysia not experiencing recession either. Japan keeps bumping along the bottom, but it's not a catastrophe, and the Australian economy is presumed to maintain positive annual GDP growth - an assumption challenged by this week's announcement that the Australian economy shrank 0.5% in the December quarter of 2008.

The NZ Institute, on the other hand, adopts a biblically rhetorical tone of doom.

"Export-driven economies in Asia are experiencing severe foreign trade declines and this is likely to precipitate a deep and prolonged recession in that region. Mainland China, Taiwan and South East Asia may experience a collapse in growth in 2009 greater than the Asian crisis of 97/98, and potentially the deepest recession in the post-war period."

Yikes.

It feels as if NZIER is trying to look on the bright side, to talk us into thinking it might all be OK-ish, while the NZ Institute has spooked itself into a more apocalyptic view than is necessary.

I found myself wanting to agree with a mate of mine, who says of New Zealand's place in this global event: "Why would the world waste a really good crisis just on us?"

It's that kind of gallow humour that will get us through the next few months psychologically, especially if the palpable sense of national binding around the scale of this problem - glimpsed best at the Jobs Summit - can take hold.

What we can't do, however, is be complacent. All of our lives have changed forever as a result of the last four months of global financial turmoil. It needn't be all bad - taking the bus makes me feel quite virtuous - but it'd pay to only count those chickens that have hatched.

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