Economic recovery at risk, Labour

HAMISH RUTHERFORD
Last updated 10:28 06/08/2014

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Another sharp fall in dairy prices puts New Zealand's economic recovery at risk, Labour says.

This morning's GlobalDairyTrade auction saw prices drop 8.4 per cent after an 8.9 per cent drop on July 16 and a total fall of 41 per cent since February.

The Treasury warned this week that weaker commodity prices, along with a high exchange rate, a slowing housing market and the potential for rising inflation, were adding to risks for New Zealand's economic outlook.

"Overall, data releases in June suggest activity in the economy will continue to expand at a solid pace through the remainder of 2014, but downside risks to the outlook for price and income growth in the economy have increased recently, especially with the recent falls in dairy prices," Treasury analysts wrote in their July economic indicators paper.

Labour leader David Cunliffe said today that New Zealand was too reliant on dairy products, and the recent falls were putting growth at risk.

"Given Goldman Sachs recently warned of a five-year global milk glut, the payout price could drop even further in coming months," he said.

"New Zealand is too reliant on one industry. Riding the wave of commodity prices is not a long-term solution to grow jobs and incomes."

Dairy giant Fonterra last month slashed its forecast payout for the 2014-15 season to $6 a kilogram of milksolids, down from $8.40 in the latest season.

The move has been matched by some smaller dairy companies.

Prime Minister John Key said on Monday that the outlook for the economy was strong.

"You've still got commodity prices for dairy and the likes at very high levels," he said.

"Overall, we still see a very strong outlook and that's backed up by the Treasury and Reserve Bank's views of where growth is going."

Finance Minister Bill English has yet to comment on the latest slide in prices.

On August 19, the Treasury will deliver its economic and fiscal update, which will give an official assessment of New Zealand's economic outlook before the September 20 election.

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