New Zealand is better placed now than in 2008 to deal with global market turmoil, with a falling exchange rate cushioning export price falls, and room to move still on the interest rate front, Finance Minister Bill English says.
As the Australian government sets itself to revise down revenue forecasts due to the fallout from the European sovereign debt crisis, English said the most recent advice he had received from Treasury before the November 26 election was there were no significant reasons to change forecasts in the pre-election economic and fiscal update (PREFU).
Recent global market events were not as sudden as those following the collapse of US investment bank Lehman Brothers in 2008, although English cautioned current events may be as serious. The New Zealand economy was better placed to deal with the current crisis, he said.
Meanwhile, following reports the IMF might be in talks to help bail out Italy, English said the New Zealand government, as a stake-holder in the IMF, would expect to be part of any bailout talks.
He indicated the European Central Bank was considered crucial to helping fix around the European sovereign debt saga, and that the biggest problem was a political one.
It was vital Europe took responsibility for the costs and consequences of its actions, English said.
No December update
English will not be asking for December update of Treasury's forecasts for the incoming government, unlike in 2008 after the Lehman Brothers collapse sparked a global credit crunch which sent growth forecasts tumbling.
Treasury usually has to release a half-yearly forecast update in December, although not in election years, when the Pre-election economic and fiscal update (PREFU) serves that purpose.
Despite that, the incoming National-led government in 2008 asked for a December update as Treasury revised down its growth and revenue forecasts due to the international market turmoil that ensued following the Lehmans bankruptcy, which occured after the 2008 PREFU forecasts were finalised.
English's office told interest.co.nz early on Tuesday there would be no December update in 2011. The 2011 election was three weeks later than in 2008, and global events in 2011 since the October 25 PREFU were not considered as being to the same extent as in 2008. The next release from Treasury is set to be a Budget Policy Statement (BPS) in February.
'It's not as sudden as Lehmans'
Speaking to media in Parliament Buildings later on Tuesday morning, English said global events since the PREFU had clearly not been as sudden as events following the Lehmans collapse in 2008.
"But I wouldn't say they're less serious. I would say that New Zealand is in a better shape to deal with those events than it was," English said.
The government had managed to raise $20 billion of debt in the year to June 2011, while this year the net borrowing requirements were between five and six billion. Government had also just dealt with a very large debt maturity so was not under big pressure in the debt market.
"Our banks are similarly in better shape than they were in 2008, although they do have higher refinancing needs than the government does," English said.
He would be talking to Treasury officials within the next day or two, after first dealing with the transition into a second term of a National-led government.
"The most recent advice I had from (Treasury) before the election was they didn't see significant reasons to change what had been put in the Pre-election update," he said.
On top of this, a report released by the OECD today pointed to the resilience of the New Zealand economy.
"They've got forecasts that are a bit different from the Treasury forecasts, but not significantly different. They're a bit lower. We are a resilient economy. For instance, we've seen the exchange rate come back in a way that will cushion the effect of any drop in export prices. We've still got room on interest rates. We're reasonably well positioned if things get a bit negative," English said.
Aussies eye lower revenue due to EU crisis
Australian Treasurer Wayne Swan is set to release a mid-year budget review this afternoon which will show a revenue track A$20 billion lower than previously expected, due mainly to the European crisis. In order to stick to his government's 2012/13 surplus track, Swan is expected to announce spending cuts, with some government agencies expecting to have their budgets cut by up to 5 per cent, the Sydney Morning Herald reports.
English said it did not look like currently that the New Zealand government would have to do the same.
"The Australians did have some fairly bullish growth forecasts early on, so it's not a surprise that, in the light of what's happening to their domestic economy, as well as confidence issues out of Europe, that they're revising their plans downward a bit," English said.
'Dear IMF can we have a say in EU bailouts'
Meanwhile, in respone to reports of a possible bailout from the International Monetary Fund for the Italian government, English said the NZ government expected to be part of any discussions on any kind of IMF bailout in Europe. New Zealand makes contributions to the IMF's coffers, and had done very recently.
"We expect to be part of any discussion about its ongoing role in any kind of [IMF] bailout in Europe," English said.
"We do all have a common interest in Europe finding its way through its problems. The IMF has played a growing but still constrained role in that," he said.
"We have some say. We're a contributor, we're effectively a shareholder. I think there would be a collective sense that if the IMF can reinforce European efforts, then there may be a role there. But it is absolutely vital that Europe takes responsibility for the costs and consequences for its own actions. You wouldn't want to see the IMF moving in to replace that responsibility."
Asked whether his view was the European Central Bank was key to helping fix the Euro crisis, English replied:
"The two countries that have been down this road, the US and the UK, in both cases it took concerted action from the central bank and the treasury to rebuild confidence. In both of those places their actual debt levels are just as bad, if not worse, than Europe's.
"It's the kind of solution we know about, because we've seen it put in place. The issues in Europe are fundamentally political and about decision-making, rather than whether there are technical solutions. We know what the technical solutions are likely to be, it's whether they can be implemented," English said.