China no reason to talk ourselves into a recession, say experts

A trader takes a nap at a securities trading firm in Shanghai. Chinese share traders have been panicking, but New ...
Bloomberg

A trader takes a nap at a securities trading firm in Shanghai. Chinese share traders have been panicking, but New Zealand is not ready to follow suit.

After being lauded as the world's rock star economy, is New Zealand's bubble about to burst? Three surveys of confidence in recent days show the mood is turning gloomy, sparking warnings about talking the economy into a recession.

There are good reasons for jitters, including sinking commodity prices, the Greek debt crisis and panicked share trading in one of our largest trading partners, China. But a quick survey of some leading economic observers suggests the optimists still outweigh the pessimists about the outlook for New Zealand in the next two years.

We asked them to rate their optimism on a scale of one to 10, where one is most pessimistic, and their top five reasons for and against.

Tony Alexander, BNZ chief economist

Positives: The migration boom. The construction boom. Near record low interest rates. Strength in non-dairy exporters assisted by the low New Zealand dollar - including wine, pipfruit, kiwifruit, and tourism. Household spending. 

Negatives: Radical slowing in China. Weakening growth in Australia. El Nino. Sustained weakness in dairy prices. Europe going back into recession.

What to watch though the next two years? Any US rate rises having to be quickly reversed.

Overall rating: 6/10

Phil O'Reilly, Business New Zealand chief executive

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Positives: The economy is becoming more diversified and businesses are investing more in research & development. We continue to build trade with growth areas of the world like Asia. We remain one of the least corrupt countries on Earth, with a positive, cohesive culture. Unemployment is much lower than in most other developed countries. Growth of new jobs continues and the investment approach to welfare is helping more people into work. The Government has a suite of policies aimed at economic growth, including the Business Growth Agenda, and is gradually improving the environment for business

Negatives: The economy is taking a slow path to greater export-intensity, especially in high-value exports. Some of our major trade partners are experiencing low growth. There's still not universal appreciation of the importance of balanced fiscal policies for economic growth, and there could be more public and media debate on the important economic issues facing us. Some parts of the community are suffering chronic material hardship and there is a persistent issue of educational underachievement among some groups. The economy is burdened with a number of laws and regulations that are not fit for purpose

Overall rating: 8/10

Donal Curtin, Economics New Zealand Ltd managing director.

Positives: Steady as she goes monetary policy framework. Steady as she goes fiscal policy framework. Recession-free Australia. Ongoing global growth (ideally seasoned with freer trade). Confidence boost from Warriors winning the NRL

Negatives: Productivity (the key to everything in the long run, but hard to prod along in NZ). "We have nothing to fear but fear itself" - but we are now doing a good job of frightening ourselves. Geopolitical risk (the markets are too complacent). Normalisation of global interest rates from unusually low levels (markets again too complacent). Confidence slump from All Blacks losing World Cup final to England

Overall rating: 5.35/10. 

Bill Rosenberg, CTU economist

Positives: Continued Christchurch rebuild (but will be starting to taper off towards the end of this period). If Greece reaches a settlement which breaks the irrational austerity model being imposed by the EC, ECB and IMF then that could herald more enlightened policies for other European states in difficulty, leading to much stronger growth in Europe. Falling interest rates assisted by Reserve Bank moves to use multiple policy tools to achieve multiple objectives. The falling dollar will help exports and may lead to some rebalancing towards non-commodity products such as higher value manufacturing (however, it will increase the NZ dollar value of New Zealand's net international liabilities and the cost of servicing them). We may continue to look good if economies worsen in the rest of the world – even if we are not doing particularly well. It's easy to sound like a rockstar when the rest of the world has laryngitis.

Negatives: International - slowing growth in the Chinese economy with risk of financial upheaval affecting exports from New Zealand specifically and global economy generally. This along with European events will depress commodity prices over the period while inept economic and political management in Australia is exacerbating current problems. Growing housing problems which exacerbate social problems and increase financial system risks. Pathetic wage growth for New Zealand workers which is bad for domestic demand and for encouraging New Zealanders to stay as other economies improve. Productivity growth is being undermined and Treasury forecast a tiny 0.1% growth in labour productivity in the March 2015 year. The Government's unwillingness to loosen purse strings, raise more revenue, thereby holding back growth in the economy - it seems determined to stick to its tax bribes in time for the 2017 election rather than broader economic and social needs. 

 

Overall rating: 3/10

Rod Drury, Xero CEO

Positives: We're far more technically connected and technology makes us a lot more nimble. New Zealand has to stop thinking about itself as a domestic economy and use technology to take advantage of the big opportunities and big movements overseas. If you're nimble and you have a bit of global experience it's an exciting time because of the big transitions that are going on. Everyone is concerned about dairy but the technology sector is going from strength to strength. "We've got $250 million in the bank, we don't have any real risk, we've got enough capital and it's actually better because others are struggling so the market is less competitive...we've got enough capital and we're hiring and it's easier to get talent." 

Negatives: New Zealand is still reacting too slowly to these big things - the technology sector is showing how quickly we can create value and it still doesn't feel like we have a real strategy for it. We are still moving at the same pace as 10 to 15 years ago so we are missing some opportunities to be more coordinated in our response and lack a technology strategy. We are too focused on commodity prices as a measure of how well we are doing - the technology sector can grow much faster so let's pour some petrol on it. The Government has made some "game changing" moves but needs more engagement with the industry. On the business side, start-ups and companies that are less resilient will find it harder to access funding.

Overall rating: 10 for Xero, lower for the economy, though still "fairly" optimistic - but would like to see the Government work at making New Zealand the best digitally connected country in the world, backed by policies to attract global talent like reciprocal work visas, tax breaks and more flexible labour laws.

 



 - Stuff

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