Economic growth wider than dairy, English

22:35, Jun 15 2014
Bill English
Finance Minister Bill English

Finance Minister Bill English says the country is not as reliant on its booming dairy industry as critics believe, and remains confident about the economy's prospects despite tighter monetary conditions and a sky-high Kiwi dollar.

Fresh from producing the first Budget surplus in six years, English is optimistic about the country's outlook despite three consecutive Reserve Bank rate rises, which have brought the cash rate to 3.25 per cent.

Higher rates have helped the Kiwi dollar reached its highest level against the greenback since August 2011, at US86.7 cents.

English has spent the past few days travelling the country to sell his May Budget.

He spent Thursday night at Fieldays where he was surprised by the amount of optimism in the farming sector, and in the dairy industry in particular.

"The most exchange rate-affected sector is actually feeling pretty confident," he said, adding that the attitude among dairy farmers is to just "get on with it".

English disagreed with critics who believe the economic story has been oversold, and in particular that the country is too reliant on dairy and the Christchurch rebuild.

"Last year we would have said that growth was built on [the] Christchurch [earthquake rebuild] and dairy, now we think it is broader," he said

"Growth has exceeded expectations this year and into next year. The economy is moving along at four per cent, and some economists argue more than that," English said.

He also pointed to the strong confidence among consumers and businesses, which has underpinned the RBNZ's tightening stance. A survey in April put business sentiment at a 20-year high.

English also noted that the "outflow of Kiwis to Australia has slowed much quicker than expected" and has been a substantial driver of recent growth, which he put down to the fact that "relativities between the two countries are changing".

Although confident, English conceded that, "high exchange rates are a concern and being at the front end of the tightening cycle is difficult," adding that "the Reserve Bank has commented publicly that it thinks the dollar is overvalued".

The government expects that "the Kiwi will drop back over the next 12 months", but English admitted it can be lonely leading the pack. He said he believes rates around the world will eventually rise, but that "we will be waiting a while for that to happen".

New Zealand policymakers are also focused on keeping future rate rises as low as possible.

"The government is aiming to influence that in two ways, by being fiscally responsible and by helping ease house price pressure," said English.

The government is working with local authorities and planners to help free up housing supply and encourage building.

"There is a lot of work going on with councils to ensure they understand the economic framework in which their decisions fit," he said.

He described the government as remarkably "forward looking", considering it is six years old, and argued that its steady rate of economic change has stopped "reform fatigue" setting in.

"There is a sense that New Zealand's got here in pretty good shape, rather than being exhausted. On this estimation, the nation is not suffering from fatigue "which only sees reforms undone".

English thinks that the higher interest rates will not be an issue for National in the September 20 election, provided the government can convince the public it is managing the economy responsibly.