Brian Fallow

The Economics Editor of the NZ Herald

English finds silver linings among the black clouds

Finance Minister Bill English. Photo / APN
Finance Minister Bill English. Photo / APN

There is a danger of becoming too preoccupied with the flow of bad news from Europe, Finance Minster Bill English warns.

While the world economy was interconnected, he said: "We just don't think we should be paralysed by the threat of something going wrong with a French bank."

Last weekend's Apec summit in Hawaii, at which English deputised for Prime Minister John Key, had reinforced his sense of a contrast between developed countries struggling to muster growth and emerging markets which are going strong.

Speaking at the release of the Herald Mood of the Boardroom survey yesterday, he said that Europe and the United States now represented only 20 per cent of New Zealand's external trade, compared with 60 per cent for Asia and Australia.

"So while they are important, they are not absolutely critical."

The wider world should be seen as a source not just of risk but of opportunity.

"Look at the opportunities that are around us - Indonesia, 240 million people growing at 8 per cent to whom we sell hardly anything and Vietnam, 60 million people growing at at 8 or 9 per cent," he said.

"The only limitation is us, it is not them - our ability to get enough people and capital into the tradeable part of the economy, when too much of our capital and too many of our people have found themselves marooned in the non-tradeable part."

The economy was going through a transition from a period when too much of the growth, not only in New Zealand but around the world, was borrowed to one when we would have to earn every single dollar that funded a new job or a higher income, he said.

While the rebuilding of Christchurch would boost economic activity for some years, sustainable growth would have to come from exporting.

Auckland Chamber of Commerce chief executive Michael Barnett said that for as long as he could remember we had been told we needed to do something about exports.

"What are you going to do this time that would be different? What would you do to convert free-trade agreements into benefits to New Zealand?"

English said some internal reorganisation over the past year or two had left the Government in a position to offer a better relationship with the business community in penetrating export markets.

More generally, the Government was focused on competitiveness, he said.

"There is no silver bullet, but there are 100 different things to do, ranging from infrastructure investment to trawling through all the regulation everyone has to deal with," he said.

"Here's a figure that bothers me. We have had domestic or non-tradeables inflation of 4 per cent, compound, for 10 years, worse than almost any of our peer economies. That is a straight tax on exporters. We think we can turn that around."

Labour's finance spokesman David Cunliffe said much more than just changing the regulatory environment had to be done.

"Government has to be an active partner with you in business. We have a cluster of policies around innovation, more money for science, R&D tax credits, a coherent skill strategy," he said.

Labour would change the monetary policy framework with a view to reducing pressure on the exchange rate.

It would encourage more active intervention on the foreign exchange market to take the tops off exchange rate spikes, and give the Reserve Bank tools, complementary to the official cash rate, that could be used counter-cyclically.

On the risk posed by the debt crisis in Europe, English said it was important the banking system was strong and flexible enough to cope if bank funding markets shut down.

As for the threat it posed through global growth, trade and commodity prices, English pointed to the benefits of a floating dollar.

"Indications are that if commodity prices drop, and that's possible, the exchange rate will drop too."

- NZ Herald

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