The long road to economic recovery

New Zealand's banking system is in a solid position despite the global economic turmoil, but the road to recovery will be a long one, experts say.

New Zealand's banking system is in a solid position despite the global economic turmoil, but the road to recovery will be a long one, experts say.

The NZX – the first market to open after Standard & Poor’s downgraded the US credit rating to AA+ from AAA on Friday – fell 3.3 percent this morning to its lowest point in nearly a year. The Australian index was down 2.2 percent.

Prime Minister John Key has moved to allay fears of a double-dip recession, saying our low debt, conservative budget and anticipated growth levels placed New Zealand in a healthy position regardless of international uncertainty.

Rebuilding Christchurch and hosting the Rugby World Cup would boost the domestic economy further, he said.

But economists have urged restraint on growth expectations.

NZIER principal economist Shamubeel Eaqub told TV3's The Nation the country was back to a "slow grind, and a very slow recovery".

He said major challenges still lay ahead.

"We have an ageing population that no one talks about. Government is going to blow out to the American levels in 10 years' time. So there are some big issues to discuss, but they're not in crisis point yet."

ASB chief economist Nick Tuffley, agreed, saying it was "far too early to start scribbling with pencils and figuring out the forecast".

The Treasury's forecast earlier this year was close to ASB's own predictions, he said.

"All we've done since then is revise up our outlook."

But with Asia-Pacific driving a significant portion of global growth, as long as New Zealand avoided any "financial contagion" from a potential European meltdown, it was well placed to achieve those goals.

According to BNZ chief executive Andrew Thorburn, while New Zealand is in a better position today compared to three years ago, the future is by no means certain.

"New Zealand economy's in pretty sound shape, the banks are in very good shape," he said.

However, 4 percent growth was not realistic.

"We're not going to go back to the consistent high growth scenario any time soon, and arguably for some years."

Our low savings rate also continues to be a cause for concern, and Thorburn said compulsory superannuation, better financial literacy and a regulated financial advice sector needed to be part of a coordinated approach.

"We need to do more to generate more savings in New Zealand than what we're doing today, otherwise we won’t be able to fund the growth of the economy," said Thorburn..

He said although New Zealand had been running a deficit for years – mainly funded through foreign borrowing – both businesses and individuals had been saving more since the GFC.

"I think one of the things that we need to see out of this is that we cannot rely on offshore markets to fund our economy to the degree that we have. We've got to start to increase the rate of savings in New Zealand. Now that’s been happening, but my view is we haven’t done enough structurally to actually sustain that beyond the next year."

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