An Auckland brothel going into liquidation last week shows even the world's oldest profession isn't immune from recession. But perhaps not. Perhaps they are battling the same issue as newspapers Business and consumer confidence dipped in January.
None of this will be too surprising to economists. Employment is always one of the last economic measures to turn around after a downturn. And as per the example above the same goes for business failures. There is a lag effect to monetary policy which makes the economic pain slow to transmit and vice versa. That means business and economic headlines often look the worst after the point at which economists see the recovery has begun.
Its chief economist Paul Conway delivered a sobering speech last week in which he highlighted an ongoing fall in the potential output or speed limit of the economy. This subdued outlook stems from expected ongoing weakness in productivity growth and lower net immigration. The speed-limit analogy invites us to visualise the economy as an engine. We can put the accelerator to the floor and push the speedo into the red for a short period but not without risking long-term damage to the engine.
But if you stimulate an economy to run above its potential output then you get inflation. The Reserve Bank has since slammed on the brakes, the engine has cooled and we are now running below the speed limit. If agricultural export earnings stay strong, if tourism numbers keep recovering and if lower mortgage rates stimulate the housing market and some domestic spending, then life should start to feel better for ordinary New Zealanders.
But 1. At that rate, the Government will struggle to balance the books and pay for all the services Kiwis expect. Ironically, the same day the RBNZ was talking about economic speed limits the Government was lifting the actual speed limits on many roads around New Zealand.
