The Business Herald’s markets and banking reporter.

NZ riding China's big dipper

Asian giant's growth rate lowest for 23 years but demand for Kiwi food tipped to keep rising.

Factors blamed for China's lower growth rate include weak demand for its exports.
Factors blamed for China's lower growth rate include weak demand for its exports.

China's so-called "economic miracle" has hit some speed wobbles, but a top New Zealand economist says this country should be reasonably insulated from any direct impact.

The Chinese Government, which revealed a sharp drop in exports last week, said yesterday that gross domestic product growth had slowed to 7.5 per cent in the second quarter, year on year, from 7.7 per cent in the first quarter.

China is officially targeting GDP growth of 7.5 per cent for 2013, down from above 9 per cent in 2011. While the world's second-biggest economy remains buoyant compared with many other parts of the world, particularly Europe, GDP growth of 7.5 per cent would be its lowest annual rate in 23 years.

Factors blamed for the downturn include weak demand for Chinese exports and domestic issues, such as measures being introduced to limit property speculation and a focus by the new leadership, which took power in March, on creating more sustainable long-term growth.

BNZ chief economist Tony Alexander said demand for New Zealand's food exports was expected to continue growing in China, despite the slowdown. "Most of the items going into China are food and demand for that is structurally rising with the growth in the middle class."

However, Alexander said the impact of the slowdown on Australia, which is being hit by falling demand for its mineral resources in the Chinese market, would affect this country.

Australian GDP growth slowed to 0.6 per cent during the first quarter of this year, taking the annual growth rate to 2.5 per cent.

Several NZX-listed retailers, including Pumpkin Patch and Michael Hill, have already flagged tough trading conditions across the Tasman.

Alexander said the slowdown in the Australian economy meant there was a risk that the kiwi dollar could rise further against its Aussie counterpart, which would put pressure on local exporters, many of whom rely on Australia as their main market. The New Zealand dollar has risen more than 8 per cent against the Australian currency since March and was trading at A85.86c yesterday.

Glen Mackie, senior policy analyst at the NZ Forest Owners Association, said Kiwi log exporters had found themselves a niche in China, which would help shield them from a slowing Chinese economy.

"Because we've got some of the cheaper logs on the market, we don't tend to get affected quite as quickly, especially when there's an economic downturn because people tend to move to cheaper products," he said.

Sir George Fistonich, founder of Auckland's Villa Maria Estate, said their wine exports to China continued to be strong. They had been supplying China for about 14 years, mostly high-end restaurants. "We're still on a growth path but I imagine if you were a new company in the supermarkets or cheaper end of the market you could be having problems," he said.

Morningstar analyst Nachi Moghe warned this month that a sharp Chinese downturn could hurt Port of Tauranga, which relies on forestry and log exports for about 40 per cent of its trade.

Rising trade

NZ's exports to China reached $6.1 billion in 2012, up from $2.1 billion in 2008.
*The most exported products were milk powder, butter and cheese, worth $2.2 billion.
*Logs and wood products came second, at $1.1 billion.

Statistics NZ

- NZ Herald

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