Finance Minister Bill English (as we noted here last week) earlier this month was saying New Zealand's problem is one of success. He disagreed with other forecasters because of his confidence in householders continuing to squirrel away their savings. Hence the country wouldn't have to run external deficits as large as those projected by the other forecasters. It was a view he was eager to expand on, obviously, because patsy questions lobbed at him in Parliament have given him the cues to ram home the point. He told colleague Paul Goldsmith the household savings rate in 2010-11 was positive (savings exceeded spending) for the first time since 2000 and only the second since 1993. Thanks to this improvement and a fall in household debt, the country's current account deficit would not deteriorate as much as it had done when it hit 8.7 per cent of GDP in 2006.
In response to a more recent patsy, English referred to the savings rate of 0.2 per cent of household disposable income as "modest" in 2010-11. But he expected a steady lift. All going well, around 3 per cent of disposable income would be saved by 2015 (and he hoped the process would be helped by an increase in KiwiSaver contribution rates on April 1 next year). As a result of better savings behaviour, household debt had fallen from a peak of 97 per cent of GDP in 2010 to 90 per cent. If only the minister had waited a few days . . . The 2011-12 national accounts published last week showed household spending outweighed income by $144 million - a slight reversal in the trend he had enthused about, but a reversal nevertheless. Total national savings (a much more critical number) shrank from $2.8 billion to $1.4b. As the Waikato Times observed, the dip in national savings bodes ill for our external deficit, and sluggish capital investment growth (also recorded in the national accounts) bodes ill for economic expansion and employment growth.
NZ Aluminium Smelters, operator of the Tiwai Pt plant at Bluff, is among those cutting down on capital spending: last month it halted $70m of investment because of "extremely challenging" conditions. Reduced aluminium exports and lower dairy receipts, were among the factors contributing to weaker-than-expected exports and a higher-than-forecast October trade deficit. The minister has cause to go back to the drawing board, or to whomever he consults for an optimism boost.