Positive factors help NZ amid global economic troubles: treasury

By NZPA

Friday 25th January 2008

Several positive factors will help this country weather global economic difficulties.

Peter Bushnell, deputy secretary to the Treasury and manager of its macroeconomic group, said a key factor was the strength of New Zealand's fiscal position.

That meant the Government did not have to react immediately and take action such as cutting benefits, it could let so-called automatic stabilisers work, he said today.

"What happens is that when the economy goes into a slowdown taxes tend to drop off a bit, benefit payments tend to rise a bit. "

That resulted in a deterioration in the fiscal position, but the Government was in a strong position and could afford that, Bushnell said.

Another positive was that the economy was much more flexible than in the past.

"We've gone through SARS, and Y2K and 9/11, and the economy's bounced through those and not been greatly affected."

He expected that kind of flexibility to continue.

A third factor was that the problems in world markets had resulted form sub-prime mortgage issues in the US.

That had been driven by many banks having been exposed to "fairly innovative" products. New Zealand and Australian banking systems had been conservative in that regard and appeared to have been less affected.

Treasury's central view of the New Zealand economy had not been significantly revised since its half-year economic and fiscal update, published a month ago, Bushnell said.

In that update, Treasury said economic growth was forecast to slow in 2008/09 before rebounding in later years to around its medium-term trend.

It also factored in $1.5 billion a year in tax cuts taking effect from April 2009.

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