By Alex Tarrant
Economic problems in the Eurozone, a sticky domestic recovery in the jobs market, the Canterbury Earthquake and adverse weather have been blamed by Prime Minister John Key as factors behind the "fairly anemic" growth in the New Zealand economy in the second half of 2010.
"There’s been a lot of different factors out there. It’s been a much stickier recovery than people actually thought. If you look in Europe and the United States the expectations were there would be much stronger growth there," Key told media in Wellington this afternoon.
"There’s been a number of different factors – we’ve seen Canterbury, in terms of the earthquake, had quite a big impact on the Household Labour Force survey, and on growth in Christchurch which has been negative," he said.
"We also had at one point there some climatic conditions – we lost a lot of lambs in the South Island," Key said.
"But at the end of the day New Zealand grew last year. It was growth that was a lower level than clearly we want. We also created 27,000 jobs as an economy last year. Again, less than we’d want for the population growth.
"All we can do is work within the global conditions we’re in and have a program for lifting overall growth.
"If you go back to the program we’ve got - whether it’s around tax, or infrastructure investment, or skills, or labour laws, or any of those other issues - as a combined package in my view they’re the right long-term recipe for growth," Key said.
"I think you can’t measure these things day-by-day or quarter-by-quarter, you have to measure them over a reasonable period of time," he said.
2010 growth could have been 6%
"The Reseve Bank themselves will tell you will tell you that if New Zealanders had consumed in 2010 at the same rate that they drew down debt in 2007, growth would have been nearly 6% last year," Key said.
"Now we actually don’t want them consuming debt at those levels, we’re actually very happy with the rebalancing that’s going on," he said.
"But what drove growth in that period from 200 to 2008 was unsustainable. It was consumption and it was debt fuelled, and it was spending other people’s money. That is not a long term recipe for the New Zealand economy. That has to be around investments, savings and lifting the tradable sector."
Technical recession can't be ruled out
Repeating comments from this morning, Key said he could not rule out that New Zealand had two consecutive quarters of negative growth in the second half of 2010 after GDP shrank 0.2% in the third quarter. Figures for December quarter GDP are due on March 24.
"I can’t rule that out. If you look at what the economist predictions are for the last quarter, they fluctuate – I think at the top end some have been plus 0.9 [percent GDP growth from the third quarter] and some economists have been negative, so look, you can’t rule out a technical recession," Key said.
"Obviously we’re hopeful that hasn’t been the case," he said.
"Whatever happens, you’d have to say that growth in the last six months of last year was fairly anemic and on that basis clearly we want the economy to be going faster. We believe we can do that by lowering interest rates, or at least keeping the pressure off the Reserve Bank so that interest rates can stay low, encouraging investment," he said.
Need to preserve credit rating
The situation in Europe did not help, Key said.
"Europe also indicates to us how important it is that we preserve our credit rating, and that’s we’re taking the steps that we are," he said.
'Businesses starting to employ people again'
Businesses created 27,000 jobs last year, Key said.
"They are starting to [create jobs], but they need the right signals internationally as well, and they’re starting to see that," he said.
"My sense of being around in the first few months of this year is confidence is actually starting to return. Unemployment’s always a lagging indicator."
But don’t they also need the right signals nationally as well as internationally, I asked
"Well the signals they want are the ones that we’ve been giving them," Key said before launching into a list of signals.
"That the government’s not going to crowd them out, that the government’s going to be careful with the legislation and regulation it passes, that it is going to be predictable in terms of things like its emissions trading legislation."
"That it is going to have flexible labour markets, that it will be investing in infrastructure, that it won’t be crowding them out by borrowing too much money each week, that we are going to get back into surplus earlier, that we have a tax system that has integrity, that we are going to run a leaner government service, that we are reforming the Resource Management Act, that we are looking at the critical issues of water, that we have resolved some of the issues around electricity, that we are looking at a mixed ownership model to have better productivity," Key said.
"I can go on if you want me to. There is no one single fix. If I could just click my fingers and do it, we’d all do it, but it ain’t as simple as that," he said
"An economy’s a very complex issue, but overall if you look at the settings we’re on, I think the reason the business community is supporting us, in the way we see through Mood of the Boardroom and other public reports, it is because there is a whole package there that is coherent.
"If you contrast that with the previous administration and the now Phil Goff-led opposition, he wants to spend more money and borrow more money, and I don’t think that’s going to take us anywhere, other than further into debt," Key said.
(Updates with video, 6% possible growth coments, Businesses employing people again)
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