Editorial: 'Rock star' NZ needs Aussies to play drums

General Motors will stop making cars and engines in Australia by the end of 2017. Photo / AP

Opinion

Transtasman rivalry is wide-ranging but only rarely does New Zealand relish comparing itself economically with Australia. This, however, is one of those times. HSBC chief economist Paul Bloxham has described New Zealand as a "rock star" economy among the OECD, and predicts the dollar may achieve parity with its Australian counterpart late this year. Before Christmas, New Zealanders were inundated with a surge of welcome economic news. For Australians, there was only gloom.

The single most devastating blow was the decisions by General Motors and Ford to stop manufacturing cars in Australia.

This meant, particularly, that Holden, a brand that had played a part in defining the national psyche for 65 years, would cease to exist.

The strong Australian dollar, high production costs, a small domestic market and competition have sealed its fate.

As well, Qantas, another symbol of Australian pride, has continued to flounder, a situation that has drawn obvious comparisons with the buoyancy of Air New Zealand.

More fundamentally, the Australian economy is feeling the effect of the end of a decade-long mining boom, during which the export of iron ore and coal to China effectively wrapped it in a recession-proof coat.

China's decision to rely less on Australia as a source of iron ore has produced a range of consequences, the most obvious of which is a growth rate marooned at about 2.5 per cent. New Zealand's economy is forecast to grow 3.3 per cent this year.

Unemployment across the Tasman is now forecast to reach 6.25 per cent this year. In New Zealand, the rate is 6.2 per cent and falling. Many New Zealanders enticed across the Tasman by the lure of high-paying work are now retracing their steps.

They are returning to a country where business confidence has soared to its highest in almost 20 years. Consumer confidence is also strong thanks to the prospects of more jobs and higher wages, as reflected in retailing figures for the Christmas-New Year period.

Whenever Australia feels discomfort, it is tempting to gloat. But this is not the stuff of a slump by one of its annoyingly successful sporting teams.

Australia continues to vie with China as our biggest trading partner. When it suffers, New Zealand exporters suffer. When it is prosperous, we benefit, as during the global recession when we escaped many of the worst consequences.

Australia now faces the challenge of reshaping an economy so there is no longer an over-reliance on mining or investment in dead-end industries. It will be much to New Zealand's advantage if the Government of Tony Abbott takes the tough decisions necessary to return it to prosperity.

The divergent paths of the transtasman economies have not gone unnoticed in Australia. Some of the commentary has included a warning that milk powder is doing for New Zealand what iron ore and coal did for Australia.

The implication is that China will not rely indefinitely on New Zealand for a commodity, and, as with minerals, will choose to diversify its supply.

That is a moot point. Milk powder does not have the strategic factor associated with iron supply, and New Zealand has the added benefit of a free-trade pact with China.

Either way, however, a buoyant Australia will remain a key ingredient in this country's economic wellbeing.