ENGLISH CAUTIOUS ON ECONOMY
By Richard Harman (author)
Finance Minister Bill English is sticking with the growth forecasts he unveiled on December 15 last year despite, by his own admission, a series of negative changes in the world economic outlook.
Those forecasts would see New Zealand average 2.7% growth each year till 2020.
In his first real set of comments on the economy this year Mr English told Parliament’s Finance and Expenditure Committee yesterday that there were a number of uncertainties in the international outlook:
- Weak commodity prices
- Slower growth in China
- Ongoing uncertainty about US interest rates.
- Signs of growing risks around European banks.
He said those signs would suggest the possibility of some degree of the turbulence that we saw five or six years ago in financial markets (The Great Financial Crisis).
But as far as New Zealand was concerned, recent data showed the economy had picked up after weaker growth during the first half of last year.
He said this meant he expected recent job growth to continue.
But even so, buried within his words, every now and then were signs that doubts are beginning to creep in.
It was certainly true of his comments on the dairy industry.
“I’m pretty confident that between the banks and the farmers, they can get through it,” he told journalists after his Committee appearance.
But he admitted that Treasury forecast were “a bit better than the track the milk price is actually on.”
“The advice that I have had is that even under some pretty extreme scenarios, there is only a small number of manageable losses.”
He said he expected there would be a small number of farmers at the margin where the pressure on them was growing.
Yet when you unpick what he was actually saying it is clear he is now qualifying his confidence; that the only thing that may be really clear is that things are starting to become unclear.
His comments through the day were punctuated by ambiguities.
Questioned by Labour’s Grant Robertson about comments last December from Reserve Bank Governor, Graeme Wheeler, suggesting the Government should increase expenditure on infrastructure in Auckland to try and stimulate the economy, Mr English though he rejected any immediate action, did not rule action out either.
“At any given time you could construct a pretty negative scenario out of the global factors and it would be fair to say that at the start of the year there was a bit more concern about the mix that is appearing than there was even three or four months ago,” he said.
“We’ve got a bit of flexibility even within the fiscal tracks that we have set.
“We have got some room to phase (expenditure) between this year and next year.
“But we’d be a bit careful about reacting to the commentary of the week or the month.
“Right now, we’ve got the flexibility but we don’t see any particular reason to change the programme.”
Treasury Secretary Gabrielf Makhlouf, who also appeared before the Committee yesterday, underlined the uncertainty.
“The start of the year has had plenty to offer both pessimists and optimists alike<” he said.
However he came down on the side of the optimists.
“I think the worry about China’s growth could be overstated<” he said.
“The slowdown is predictable – in fact it’s in line with the Chinese government’s strategy to rebalance its economy from investment to consumption.
“I’ve recently returned from Hong Kong and China, where the people I spoke to are not expecting a hard landing.”
He also pointed out that growth in the second half of last year had been higher than was forecast by Treasury in the Half Yearly Fiscal and Economic Update, also published in December.
“Our diversified economy delivered higher GDP growth in the second half of 2015 than we expected in HYEFU and may push growth in 2016 up to around 2.5 percent – again, higher than forecast in HYEFU.
“Sure, the economy isn’t sprinting ahead – no one’s is – but nor is it crawling along either.”
What emerges is an economy that is delicately balanced and a Government whose fortunes are therefore delicately balanced with it.