Trimmed growth forecast no surprise: economist
ANDREA VANCE AND KIRSTY JOHNSON
Finance minister Bill English says the economy is resilient as the Organisation for Economic Cooperation and Development (OECD) slashes New Zealand growth forecast.
In a twice yearly update today the OECD cut growth forecasts for the largest economies and urged the European Central Bank to act to prevent the euro-zone sovereign debt crisis from deepening.
It said a ''negative event'' - such as default by Spain or Italy - may cause a contraction of the global economy and it warned the Euro zone is headed for recession.
It cut New Zealand's 2012 outlook from 4.1 per cent in May to 2.5 per cent. It is lower than Treasury's prediction of 3 per cent.
English said this morning he has not had an update from Treasury since before Saturday's election but will be talking to officials ''over the next day or two''.
''We are still dealing with the transition in government but the most recent advice I had from them before the election was they didn't see significant reasons to change what had been put in the pre-election update.
''I see the OECD report today refers to the resilience of the New Zealand economy. So they've got forecasts that are a bit different from the Treasury forecasts but not significantly different.
''They are a bit lower but we are a resilient economy - for instance we've seen the exchange rate come back in a way that will cushion the effect of a drop in export prices, we've still got room on interest rates. So we are reasonably well positioned if things get a bit negative.''
The OECD said the European Central Bank should buy up government bonds and cut rates, and the IMF was being looked to in hopes it would help ease Europe's woes. Head of the IMF Christine Lagarde has denied Italy and Spain have asked for a bailout.
New Zealand is a member of the IMF and English was asked this morning if the organisation should be bailing out first world economies.
''We are signed up to the IMF,'' he said.
''We've made contributions to them fairly recently, we would expect to be party to the discussion about its ongoing role in any kind of bailout in Europe, but we do all have a common interest in Europe finding its way through its problems. The IMF has played a growing but still constrained role in that.''
He said New Zealand ''has some say'' - and the Euro-bloc must take responsibility.
''But we are contributor, we are effectively a shareholder in the IMF . I think there would be a collective sense that if the IMF can reinforce European efforts then there may be a role there, but it is absolutely vital that Europe takes responsibility for the costs and consequences of its own actions.
''We wouldn't want to see the IMF moving to replace that responsibility.''
He added: "The issues in Europe are fundamentally political and about decision making rather than whether there is technical solutions. We know what those technical solutions are likely to be, it's whether they can be implemented.''
NZIER principal economist Shamubeel Eaqub was not surprised by the OECD's trimmed forecast.
"We've seen increasing evidence the weakness in the global economy is going to get worst and New Zealand is not immune or insulated from those things," said Eaqub.
"We will see the New Zealand economy slow as a result of that."
Referring to the Eurozone debt crisis which saw the governments of Italy and Greece shift politically, with prime ministers in both countries being replaced and "technocratic" governments installed, Eaqub said the effect of this will reach New Zealand's shores.
"With the global situation changing very rapidly over the last three months, the outlook for Europe has deteriorated very, very sharply.
''We're starting to see increasing evidence that this will affect real economic activity in Europe, UK and some of our trading countries. That means over the next year, our exporters will be able to export less and receive less income for their exports."
Eaqub added that the major parts of the economy - household, business, government and exporters - would all be "battening down the hatches" for the foreseeable future.