Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 

NZ economy in for a bumpy ride following the Brexit vote

NZ economy in for a bumpy ride following the Brexit vote, expert advises

June 26, 2016

The Brexit decision is a body-blow to the global outlook and New Zealand is decidedly vulnerable to the ensuing global turmoil, a leading Kiwi economist says.

In BERL’s just released updated forecast, chief economist Dr Ganesh Nana says the stubborn economic fog has thickened considerably as a result of the British referendum outcome to leave the European Union.

Despite six years of New Zealand economic growth – as measured by GDP – broader and arguably more informative measures of economic health suggests New Zealand’s economy is not well prepared for global turmoil.

“So buckle in for the coming months, they will be neither smooth, nor enjoyable. We’re in for a rough period. Heading into the Brexit vote were underlying weakness in Europe alongside geo-political upheaval and a peculiarly potentially disruptive US presidential election campaign. Meanwhile, prospects for the Chinese economy remain the elephant in the room (the response of international financial flows to the prospect of sub seven percent annual growth in China remains a worrisome unknown).

“With such uncertainty, vulnerability and fragility, the potential impact of an upheaval such as the United Kingdom leaving the EU cannot be understated. The short-term disruption to the global financial mechanism at a time when monetary authorities were pretty much out of ammunition is set to be hair-raising. And the potential for haircuts down the road should also not be understated.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

“There is no way New Zealand will escape the short and longer term fallout from such global disruption. In the run-up to the Brexit vote the New Zealand dollar rose to close to or above 12 month highs against the US dollar at about 71 US cents, the Australian dollar at 95 Aussie cents, the UK pound at 49 UK pence, and the Euro at €0.63. The immediate response to the Brexit decision saw a reversal of some of these gains, as funds fled to the conventional safe havens of gold and the greenback.

“But the vote also sees the fog thicken over the future of the EU not to mention the leadership of the governing Conservative Party in the UK. With such a climate, reinforced by recent OECD and IMF downwards revisions to global growth forecasts and relatively attractive New Zealand interest rates, the attractiveness of the NZ dollar could well return after the immediate response. That could further restrain external sector income and, so, investment in that sector.

“The run-up to the vote, however, also saw the New Zealand mood to be remarkably sanguine. Yes, the recovery from the 2010 recession has been impressive. Yes, six years of almost uninterrupted expansion, averaging an annual 2.5 percent, is not to be sneezed at.

“Growth driven by specific construction elements (Christchurch, Auckland housing, and regional roading) that are more catch-up maintenance than productivity-enhancing capacity expansion leaves one asking whether the gains are indeed material. Further, growth associated with strong population expansion brings queries about sustainability of the expansion. Annual economic growth of 2.5 percent in the context of population growth well over 2 percent leaves one rightly asking about the nature of the gains.

“And we have to consider house prices in Auckland and beyond. The imbalances between asset price inflation and economic activity has been a feature of the post global financial crisis world. Global consumer price deflation reflecting sluggish global demand contrasts starkly with asset price inflation as quantitative easing has flown directly through to bloated balance sheets rather than to economic activity.

“And the surfeit of funds globally looking for a home has amplified the bubble present in Auckland house prices. As for all bubbles, there is a risk that they burst. And the larger the bubble, the greater the risk. In the absence of any genuine government appetite to rectify the asset price imbalance, the ongoing attractiveness of NZ as a home for such funds will see this risk as an ongoing feature of the New Zealand economic climate.

Within this context, NZ’s short-term economic prospects become more delicate,” Dr Nana says.


ends

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines



Gordon Campbell: On Dune 2, And Images Of Islam


Depictions of Islam in Western popular culture have rarely been positive, even before 9/11. Five years on from the mosque shootings, this is one of the cultural headwinds that the Muslim community has to battle against. Whatever messages of tolerance and inclusion are offered in daylight, much of our culture tends to be hostile to Islam when we’re sitting in the dark, with popcorn.
Any number of movie examples come to mind, beginning with Rudolf Valentino’s role (over a century ago) as the romantic Arab hero in The Sheik...
More


 
 


Government: One-stop Shop Major Projects On The Fast Track

The Coalition Government’s new one-stop-shop fast track consenting regime for regional and national projects of significance will cut red tape and make it easier for New Zealand to build the infrastructure and major projects needed to get the country moving again... More

ALSO:


Government: GPS 2024: Over $20 Billion To Get Transport Back On Track
Transport Minister Simeon Brown has released the draft Government Policy Statement (GPS) on Land Transport, outlining the Coalition Government’s plan to build and maintain a transport system that enables people to get to where they need to go quickly and safely... More

ALSO:

Government: Humanitarian Support For Gaza & West Bank

Winston Peters has announced NZ is providing a further $5M to respond to the extreme humanitarian need in Gaza and the West Bank. “The impact of the Israel-Hamas conflict on civilians is absolutely appalling," he said... More


Government: New High Court Judge Appointed

Judith Collins has announced the appointment of Wellington Barrister Jason Scott McHerron as a High Court Judge. Justice McHerron graduated from the University of Otago with a BA in English Literature in 1994 and an LLB in 1996... More

 
 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 
 

InfoPages News Channels


 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.