Surplus still on if Asia stays clear of Euro, US trouble, says Key

Prime Minister John Key thinks the government will be able to stick to its surplus and debt tracks if Asian economies stay "de-coupled" from the economic turmoil in Europe and the United States, following figures showing the New Zealand economy was stagnant in the second quarter this year.

He said a slightly lower currency would help. The New Zealand dollar has fallen from a record post-float high over 88 US cents at the start of August to just under 78 US cents this morning.

GDP figures released by Statistics New Zealand last week showed the economy expanded 0.1 per cent in the June quarter from the March quarter, following 0.9 per cent growth in the March quarter.

Speaking on TVNZ's Breakfast programme this morning, Key noted Stats NZ had upgraded first quarter growth from 0.8 per cent to 0.9 per cent, and said the Reserve Bank and Treasury were more optimistic about the second half of the year due to the effect of the Rugby World Cup.

The Christchurch rebuild was being pushed back as demolition took place, but it was shaping up to be a big boost to growth next year, Key said.

"Overall, if you look at our economy, we're starting to get back on that track to get back into surplus, our debt level's much lower than the Eurozone, we're growing," he said.

Key said he thought the government would be able to stick to its track to surplus in 2014/15.

"If you look at our economy overall, we're producing some great numbers. We have grown eight of the last nine quarters," he said.

"It's going to help with a slightly lower exchange rate that's taking place at the moment - if that can be there for a bit longer it will help our export sector. The big challenge for New Zealand - it's the same one that Australia faces - is, will Asia stay de-coupled from Europe and the United States?" Key said.

There was a good chance that Asian growth would stay de-coupled from the turmoil hitting Western economies, he said.

"The general view, Bill English was saying to me, from the IMF and theWorld Bank is that China will continue to grow at 8-9 per cent. If that's the case, then Australia stays strong. And if China stays strong and Australia stays strong, they're our two biggest markets, and that helps us," Key said.

In an interview with Newstalk ZB this morning, Key said there was a very high chance Greece will default.

"You wouldn't bid against it," he said. "When you have a lot of debt, frankly if you have any debt, there are only two options: Pay it off or write it off. The chance of them paying it off is quite low.

"There is certainly a tightness again in the international market. There is real concern about some of these countries and particularly some lending institutions.

"The good news from New Zealand's point of view is we're in a much better shape than a lot of other countries. Our requirements to borrow are very low, in fact significantly lower than they were last year and certainly a vastly different situation to 2008-2009.

"We're in good shape," said Key.

"The pattern or the link there, if China slowed down, Australia would slow down, and that would have a impact on New Zealand.

"Having said that, people are optimistic China will continue to grow at 8 or 9 per cent."

INTEREST.CO.NZ/NZ HERALD ONLINE