'Next 6 mths crucial for global economy'

Global economy's performance over next six months crucial for seeing what impact international slowdown will have on NZ growth, Key says

12th Sep 11, 7:37am by Alex Tarrant

The performance of the global economy over the next six months will be key to New Zealand’s growth prospects as economic data from the United States and Europe worsens, Prime Minister John Key says.

Speaking on TVNZ’s Breakfast programme, Key said a deteriorating global situation could have some impact on the domestic economy. His comments come after Treasury last week indicated the global situation meant its growth forecasts might be on the downside of Budget 2011 expectations when it releases its Pre Election Fiscal Update in the second half of October.

See more here in Bernard Hickey's 90 seconds at 9am on the intensifying global uncertainties over the weekend.

Key said he met with the Asian head of the World Bank at the Pacific Forum in Auckland last week who said the Bank was still forecasting global growth at over 3% for this year, despite having lowered their forecast.

“I think it [the weakening global outlook] can have some impact, but I wouldn’t want to overstate that yet. It depends what happens in the next six months I think," Key said.

The environment in the US in particular was very weak, he said.

“They’re now saying – and I remember being on [Breakfast earlier this year] saying President Obama said to me the ~~official~~ unofficial unemployment rate was 13% to 14% - they were saying in the weekend that it is 16%. That’s a lot of Americans out of a job," Key said.

Credit rating agencies had been saying the New Zealand government was "doing the right thing" in terms of its debt and surplus tracks.

“But the bit we can’t control is the environment in the United States and Europe, and what we’re seeing is very weak numbers out of both of those economies. Now, the problem for us is that feeds into both global confidence and global demand,” Key said.

(Updates with link to 90 at 9, further comments from Key, corrects "official" to "unofficial" unemployment rate)

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7 Comments

by Colin Riden | 12th Sep 11, 9:50am 1315777856

Key appears to be backpedalling fast. The name of the game has now become "passing the blame".

Our leadership deficit is becoming ever more apparent.

by neco | 12th Sep 11, 9:51am 1315777893

I wonder what our "unofficial" unemployment rate is. Maybe its time we took "underemployment" into consideration.

by Colin Riden | 12th Sep 11, 10:20am 1315779639

I think we are in trouble when the strongest support the government can find for its policy track comes from the credit rating agencies:

Credit rating

There are a number of credit rating agencies that review an institution's credit and rate it in terms of relative risk.

Standard & Poors, Moody's, and Fitch, are examples of credit rating agencies.

In very general terms, highly rated credit (NZ Government, the trading banks, etc) give investors lower risk.

Some New Zealand deposit takers have no credit rating. Higher risk is usually reflected in higher rates - lower risk in lower rates. To get credit rating information, you will need to check with the institutions you select.

This web site does not accept any responsibility that listing on the site implies any credit status. The lack of a credit rating should not imply anything in particular. Seek professional advice when considering relative credit ratings.

Investment grade credit ratings are usually those with BBB- and higher.

Speculative grade credit ratings (often known as "junk") are those with a rating of BB+ or lower."> agencies had been saying the New Zealand government was "doing the right thing" in terms of its debt and surplus tracks.

Quite why they support Bill's borrowing to "keep up entitlements" is unclear.

by laurence | 12th Sep 11, 1:15pm 1315790142

Easy to answer Colin, there is good money to be made out of lending to NZ at the mo. High interest rates (by global standards), perpetuated over-valued currency and good asset backing in SOE’s, national assets and productive land that can be grabbed when repayments aren’t met.

The old adage of lend to those with good assets that you can then bankrupt and get hold of these assets works very well.

by Matt in Auck | 13th Sep 11, 12:26am 1315830408

Exactly neco, key needs to be careful what he says. The unofficial rate in nz might be 10%

by Kunst | 12th Sep 11, 10:25am 1315779900

In front of the Beehive – now - against underperformance of ministers.

Alex – you younger people from www.interest.co.nz should concentrate your efforts on what’s happening right here in New Zealand – your future. The world is connected and we are running into massive problems. This requires a performing government and an opposition, which does read the signs of the time and behaves accordantly.

As I mentioned here: http://www.interest.co.nz/news/55306/election-2011-party-policies-economy-youth our government should be accountable for their (in)actions. It is up to you, the younger generation to make sure it does happen and the government works for the interest and wellbeing of the wider NZpopulation. Unfortunately I cannot not see much solid involvement/ participation.

As soon as riots (jobless people especially youth) kick in – it is too late.

by meh | 12th Sep 11, 10:35am 1315780542

The article refers to the US, but IMO I feel NZ isn't much different.

At this point, none of these governments is operating on anything that remotely resembles sound principles. They’re operating on a number of different priorities and a number of different interests – self-interests, because politicians after all are just people. So whatever it takes to kick the can down the road, they’re going to do.

And they have done this because there are no real operating principles other than buying the votes that they need to get re-elected and to stay in office for as long as they can, and then they pass the baton to the next bureaucrat and the system continues. But it’s reaching the point where, I think, within a relatively short period of time it’s got to come to an end.

The Economic and Financial System Is Coming Unglued, Living in a Degraded Democracy

http://www.marketoracle.co.uk/Article30331.html

There is never a good time to fix this kind of a problem. So politicians will always make the choice to not actually address the problem, but rather to leave it to the next person’s watch. This isn’t – this would be a horrible time, absolutely a horrible time to fix the problems that face the American economy. Slashing the deficit, slashing the debt, slashing the government spending at this point would have catastrophic consequences to the average person. There would be riots in the street; but if you don’t fix it now, when do you fix it? Okay, well, do you fix it in the next year? No. Do you fix it the year after? The government will do whatever it can to keep pushing this down the road, but they can’t push it down the road much further.

and there are lots of reasons why politicians will not tell the truth to the population as a whole and say, “Look, we are not slashing spending if we go back five years in our deficits. You know, America and the world was not a rubble-strewn anarchic wasteland in 1995, and if all we do is cut spending back to that we will have made massive progress,” and people aren’t willing to just tell the truth and say, “Look, you people have become lazy and entitled and you have lost track of reality, we have lost track of reality, we have encouraged you to lose track of reality, so we really need to make decisions before reality makes those decisions for us in a much more brutal way,” but it seems hard to imagine anyone could get elected without sort of chanting, “USA Number One,” and actually telling the truth to the population, so it is almost like the market of the delusional population is driving politics in a way.