Our economy is fine, says English

Finance Minister Bill English says debt is under control, and the Government is on track towards a financial surplus. Photo / Mark Mitchell

The global economic outlook may be uncertain for the next five years, but New Zealand is in good shape to deal with that, Finance Minister Bill English says, despite rating agency Standard & Poor warning our economy is vulnerable.

New Zealand's sharemarket continued to follow its overseas counterparts sharply lower yesterday, taking its three-day losses to more than 9 per cent.

The New Zealand dollar has plunged from US87c to below US80c.

The market turmoil in the US and Europe has raised fears the global economy will slip back into recession, and S&P has warned that New Zealand is one of the countries most exposed in the Asia-Pacific region.

It also said the Government had less financial headroom to fund any further bailouts required if New Zealand's finance sector was more affected than it was three years ago.

S&P already has New Zealand's AA+ rating on credit watch negative, implying a one-in-three chance of a downgrade within two years.

But Mr English said the Government was in better shape than it was three years ago, "because it's got its debt under control".

He said Reserve Bank knew more about how to handle the crisis because it "learned a lot from 2008".

"I think most New Zealanders are in better shape. We're getting used to this sort of buffeting ... Households have got the messages from the world that they need to borrow a bit less and save a bit more."

He agreed with S&P that the Government's finances were bearing scars, "in the sense that we ran a very large deficit driven very significantly by the Christchurch earthquake. But what's important is we've got a track that's taking us back to surplus which will give us one of the stronger balance sheets around".

Nevertheless he did not expect to see a sustained recovery in the international environment for some time.

"I think we're going to see these events episodically over the next four or five years. Every now and then they'll crop up. The debt problems in the US and Europe are getting worse not better".

But Labour finance spokesman David Cunliffe scoffed at Mr English's claim New Zealand was in good shape.

He said it had far higher public debt, higher unemployment and lower growth than three years ago, and the Government had recorded fiscal deficits every year since then.

"New Zealand's economy is in worse shape now than under the previous Government beyond a shadow of a doubt."

He said Standard & Poor's had made it clear that New Zealand's key vulnerabilities were its overly narrow range of exports and high level of total debt driven mainly by the property market.

Labour's economic development policy would address the exports and its proposal for a capital gains tax would help fix the debt.