Editorial: Time will tell if NZ rides out new storm

NEW ZEALAND is a small but sturdy boat. We have ridden out the past few storms in the world economy, which offers confidence we can survive this one.

It is not yet clear how serious slowing growth in China may be. Stock markets have reacted as they do to any sign of uncertainty. But they are their ships' casinos, banging and clattering about whenever the sea turns rough.

Down on the decks where people work, shop, eat and are entertained, we see no sign of panic. On the bridge, business leaders and the Government are holding their nerve. There is ballast in the balance sheets, though not nearly as much as there was eight years ago when a property slump brought recession, then global financial crisis.

Property prices in New Zealand rebounded by 2010 and for the past five years have risen at a rate that now presents the main risk to our ability to ride out this turbulence.

Rapid house-price inflation makes it hard for the Reserve Bank to bring interest rates down in line with those of most other currencies.

In May, the bank announced an unusually selective loan-to-value ratio for residential investment property in Auckland, and the Government announced a "bright-line" test fortaxing capital gains on investment homes sold within two years of purchase.

Both restraints were to begin next month, but the bank has postponed the loan-to-value change to November.

Since May, the bank has lowered its official cash rate several times as world conditions deteriorated, but Auckland property prices have surged more than ever. Perhaps the winter boom is a result of speculators getting in while the going is still good.

China's economy needs to find a new balance and the country's scale makes this a seismic shift felt internationally. But this is not like the global financial crisis.

If we are now in a sea change, we can cope.

-NZME