NZ faces long, slow recovery, says Bollard

Friday 19th November 2010

New Zealand’s economic recovery is progressing “very slowly” and “could yet be a prolonged process,” says the Governor of the Reserve Bank of New Zealand, Alan Bollard.

While the medium-term outlook looks favourable, the large Budget deficit needs reining in and will “subtract from growth for a number of years,” Bollard told a Deloitte tax conference in Auckland.

This would contribute to a weak housing market, “impaired” levels of consumption and private demand, fragile balance sheets, and cautious businesses.

Developed world economies struggling with their own massive fiscal stimulus hangover would grow slowly too, but on the bright side, Australia, China and large, energy-rich developing economies including Russia and Brazil, were growing strongly, while South Africa and Latin American economies were enjoying export-led growth.

The strength of the Chinese and Indian economies “will benefit New Zealand indirectly over and above our direct trade exposure,” Bollard said.

“Emerging markets develop significant middle classes, there is a commensurate increase in demand for protein, increasingly animal-based, and food market analysis by Japanese firm Nomura predicts that “real food prices will need to rise significantly” in response to growing demand.

While New Zealand is not a huge food producer by global standards, its food exports as a percentage of total economic activity places it “top of the world,” said Bollard. “We are the best placed in competitive terms in Nomura’s food vulnerability index.

“Food trade is volatile in the short term, but these trends are very positive for New Zealand’s terms of trade, which have picked up significantly over the last decade.”

Growth in Australia, stoked by “reasonably sustainable” growth in China was a further important pressure on New Zealand’s performance.

The Australian minerals boom and strong currency were driving “strong demand for food and manufacturing exports from a more competitive New Zealand. We are a primary product supplier to Asia, but we need to see ourselves also as a post-primary supplier to Australia,” said Bollard.

(BusinessDesk)

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