Finance Minister Bill English told Prime Minister John Key that the mood among global economic policy makers is “very dark,” with there being genuine concerns the US and Europe are in for a tough couple of years.
English is currently in New York where he has met US Federal Reserve chairman Ben Bernanke and China’s Finance Minister, among others, to try and get a gauge on where they think the global economy is heading as sovereign debt crises trouble both Europe and the US.
The fact the US accounted for a third of the world’s economy, and as the danger of a Greek sovereign default grew – Key said he thought that likelihood was greater than 50% - meant New Zealand was not immune from what was happening on global markets.
But it was not all doom and gloom for New Zealand, Key said, with expectations China’s economy would keep growing at 8-9%, meaning demand for New Zealand’s exports would continue from our second largest trading partner. Chinese growth would also help keep afloat the Australian economy, New Zealand's largest trading partner. The government was also still on track for reaching a Budget surplus in 2014/15, Key said.
Key told media at his regular weekly post-Cabinet press conference that the government’s economic advisors were predicting lower trading partner growth over the next few years, but New Zealand was in a better position than most to handle any global fallout.
English had told him he did not expect wholesale money markets to dry up like they did following the collapse of US investment bank Lehman Brothers in late 2008, meaning New Zealand banks would not be completely shut off from their offshore borrowing lines.
“It’s fair to say he [English] characterised the mood as very dark. There is genuine fear that both the United States and Europe could be in for a tough time in the next 12 to 24 months,” Key said on Monday afternoon.
“As the Reserve Bank governor pointed out last week, the volatility in Europe and the United States is likely to reduce global growth.,” Key said.
“We’re not immune from the current issues with the US and Europe, but New Zealand’s position relative to many other economies is not all doom and gloom by any stretch of the imagination. This government has a plan to get our deficit and spending under control. It’s a plan we’ve been implementing since we came in to government,” he said.
Key said he had not received any advice that Treasury would have to alter its surplus and debt tracks. The government had been hoping to return to surplus earlier than the 2014/15 track, with the latest turmoil on global markets meaning that may not happen, therefore pointing to a return as the track outlined, he said.
(Updates with video of Key at post-Cabinet press conference).