By Alex Tarrant
Subdued sentiment about the global economic recovery may see Treasury lower its projections for trading partner growth when it releases its December Half Year Update, Finance Minister Bill English says.
But a silver lining for New Zealand exporters is that most economies in the Asia Pacific Economic Co-operation (APEC) bloc are expected to experience annual growth over 4% in coming years, he says.
English attended an APEC finance ministers meeting in Moscow at the end of August, and also met investors in Hong Kong and representatives from the major credit rating agencies in New York in early September.
While APEC was a relative bright spot in terms of growth prospects, analysts watching the developed economies, particularly Europe, had grown more downcast about the global economic recovery.
“There was a growing realisation that the effects of deleveraging are longer-term and deeper-set than people had thought," English told interest.co.nz.
That was reflected in major institutions revising down growth forecasts, and reflected in the latest NZIER consensus forecasts here. Those consensus forecasts, released on September 17, showed New Zealand's export outlook had softened
"The global economy is slowing and the NZ dollar is expected to be higher for longer. Forecasts for export growth have been revised lower for 2013 (1.3% from 2.1%) and 2014 (1.9% from 2.6%)," NZIER said.
English said part of the realisation overseas was that achieving reasonable, steady income growth was going to be a real challenge globally.
“You do get the sense that they’re following what’s now an annual pattern, which is, in the first half of the year people think things are going to get better; in the second half they’re not so sure. That’s happened the last two years now,” he said.
Asked if that would feed into official picks for New Zealand trading partner growth, English said that would be worked out over the next couple of months as Treasury prepared its half year update, to be released in December.
“It looks a bit more subdued when you add it all up offshore. It’s not yet clear how that will flow through," he said.
What will happen in China?
English said he met with a number of analysts in Hong Kong who spent a lot of time watching the Chinese economy. The Chinese leadership change-over, as well as the Presidential election in the US, was creating a bit of uncertainty about how strong growth in the world’s major economies might be over coming years.
“It depends on whether you believe the Chinese authorities can maintain growth or not," English said.
“[There was] a range of views from those who think [the Chinese economy is] going to keep moving along at 7-8%, and others who think there’s actually quite a significant slowdown going on, and that they’re distracted by the leadership change," he said.
Rating agencies don't like NZ external debt position
Credit rating agencies Moody's and Standard & Poor's expressed interest in New Zealand's domestic savings rate and the government's fiscal surplus track.
“Their story hasn’t altered. They still see us as having some vulnerability because of our high level of the negative net investment position, and they want to see it come back," English said.
“Standard and Poor’s have said in the past that in order to upgrade New Zealand they’d need to see sustained current account surpluses, which looks some way off," he said.
APEC bright spot
Meanwhile the APEC finance ministers meeting in Moscow had a more positive feel, with most of the nations expecting 4%-plus growth in coming years.
“It just underlines the size of the opportunity for New Zealand. We are close to a number of fast-growing markets. Even if the world economy slows down a bit, there’s still a large number of people there with sufficient income to buy our products," English said.
A risk, however, was a further slowdown in large developed economies, which would flow through to the APEC economies.
“You’ve now got this integrated supply chain through East and South Asia into Europe and the US. If the US and Europe are buying less, it slows everybody down," English said.
“But a place like Indonesia, they’ve still got large investment-driven growth," he said.
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Credit rating agencies Moody's and Standard & Poor's expressed interest in New Zealand's domestic savings rate and the government's fiscal surplus track.
“Their story hasn’t altered. They still see us as having some vulnerability because of our high level of the negative net investment position, and they want to see it come back," English said.
“Standard and Poor’s have said in the past that in order to upgrade New Zealand they’d need to see sustained current account surpluses, which looks some way off," he said.
And what is English doing about the current account? The clue is in the last line, which still implies that he doesn't realise he's the Minister of Finance. Zero in other words; or less than zero when you factor the ROTW is aggressively doing something. He, Joyce and Key are far too populist to do anything about it; the solutions are staring them in the face, and to the credit of Labour, the Greens, and NZ First, they are all inviting the Nats to undertake some of them. The Nats are blindly refusing. Remember that global current accounts are in balance; the GFC is no excuse. The main global deleveraging that has to take place is that surplus countries have to relatively start spending more; and deficit countries have to start producing more; and if the deficit is very large, yes- spend less, certainly on foreign goods.
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