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Prime Minister John Key - Source: ONE News
When the latest bout of financial market jitters kicked off last week Prime Minister John Key responded straight away by talking up the New Zealand economy. He claimed we were in a far better position to deal with another financial crisis than many countries.
The tough talking drew its fair share of criticism here with many accusing Key of being overly optimistic and complacent about New Zealand's position in the world.
The Credit Rating Agencies - mindful of our large foreign borrowings - also added words of warning saying New Zealand remained vulnerable to a global slowdown, the reason being our heavily reliance on exports.
Now I agree there are plenty of reasons to worry about New Zealand's long term economic position, and there are also plenty of debates to be had about what the right economic policies are for this country.
But maybe it's not that unreasonable for Key to put a positive spin on our current situation.
There are (or were at the very least) some signs of a growing robustness in our economy.
Unemployment is starting to trend down (albeit slowly) while a new National Bank survey out this week would suggest that economic growth is going to be relatively strong in the second quarter.
Export prices have been good, manufacturing activity continues to expand, the farming sector has had a great winter so far and house prices are stable.
And in the back of people's minds of course is the knowledge that at some point over the next year or so an awful lot of money is going to be spent rebuilding Christchurch. That is good for confidence.
The question is I guess is how much of a downer will the market jitters of the last few weeks have on future growth in New Zealand?
Not doubt there will be an impact if world growth slows.
As we have seen, the NZX can still fall heavily when the Dow plunges and that is not a good thing for confidence and investment in the local business sector.
However, on at least one day last week New Zealand's market ignored a heavy fall on Wall Street and staged a rally on its own.
So you'd have to say it's not entirely clear yet how much impact the global volatility is having on local investment and hiring intentions.
The next Business Confidence survey in New Zealand will be very telling then, especially for the Reserve Bank Governor.
Let's not forget too that Treasury has also pre-funded a lot of our government's future borrowing needs while our retail banks have also toed the line recently and started reducing their reliance on riskier short term funding.
This could all prove to be very important if credit markets start to freeze again as they did after the Lehmann Brothers failure.
More encouraging for New Zealand though is the fact that this week the milk price on Fonterra's global dairy auction largely shrugged off the recent market turbulence, posting only a very slight decline.
This is in sharp contrast to some consumer demand-driven commodities like oil, which have bounced around viciously in the face of increased pessimism about the world growth outlook.
Now it's true, as Westpac points out, in a new research report that milk powder prices have been easing of their own accord for the last six months after hitting record highs.
However, the bottom has not fallen out of milk prices like it did during the global financial crisis of 2008 and Westpac says Fonterra's payout looks set to stay around $7 per kg of milk solids.
Investors certainly still seem to have faith in our commodity exporting potential - just look at the kiwi.
While it may have taken a battering during the recent market gyrations, it's still at historic highs around 82 US cents.
And while some of it can be put down to US dollar weakness, a good chunk of it must also reflect confidence in the New Zealand economy as well.
Of course much of the confidence in New Zealand stems from our closeness to Australia and our growing exports to China and its burgeoning middle class's demand for high quality food.
Now, at this stage, China's economy is still holding up well in the face of the crisis in the Euro Zone and the slowdown in the US.
However, it would be foolish to think we are out of the woods yet. China, for example, could yet run into trouble be it economic or social.
The debt crisis that started back in 2007 still has a long way to play out.
So it's vital New Zealand uses any economic breathing space it may have to continue to strengthen its balance sheet.
The harsh reality is that we still have an enormous amount of outstanding (mostly private) debt to the world.
Like many Western countries, until we have got that back to a more sustainable level, we will struggle to be in control of our own destiny.
What do you think? Have your say on the messageboard below
Add a Comment:
Post new commentBilly J said on 2011-09-30 @ 12:53 NZDT: Report abusive post
Fitch's downgrade of New Zealand's credit rating to AA with its basis in an external debt of 83% of GDP and an 0.1% growth rate in the last 3 months is a direct consequence of the governments fiscal mismanagement namely raising GST to 15% and running a 16 billion deficit to fund tax cuts during a recession.In addition it is a result of business borrowing to stay afloat due to consumers having less discretionary spending power due to low wage policies and GST increases.
Billy J said on 2011-09-20 @ 13:44 NZDT: Report abusive post
Given an annual deficit of $16 billion pa to fund the governments tax cuts,given an 5.4 percent increase in the cost of living on account of this governments increase of GST to 15 percent and its increases in petrol based taxes ; business failures on account of consumers reduced spending capacity; and the increased cost of borrowing overseas how economically sustainable are economic policies of this government.
Hot Button Marketing said on 2011-08-22 @ 16:50 NZDT: Report abusive post
Corrin...it is inevitable we face an endgame the likes none of us have ever experienced before because of a $600 Trillion Dollar derivatives or credit bubble waiting to pop. Our currency system is coming to and end, and this will usher in a new Gold and Silver backed money system. Why? Because no one can print Gold or Silver. Without exception every fiat currency that ever existed has always returned to it's intrinsic value of zero. Every fiat currency on the planet has cancer. It's the truth...
Marjorie Dawe said on 2011-08-19 @ 16:36 NZDT: Report abusive post
Not so long ago we were in such a terrible financial state that we had no choice other than to sell our valuable assets and make big savings on government expenditure by making our public servants redundant. Now we have an admission that we actually arent that badly off. Isnt this a contradiction and maybe we dont need to take such harsh austerity measures after all.