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Tuesday, 17 February 2009

Alasdair Thompson: Let's aim to be self-reliant

Past Social Credit highflyer and now Chief Executive of the Employers and Manufacturers Association (Northern) Alasdair Thompson makes his comment on the economy as published in the NZ Herald 17th Feb.

Though the economic news around the world is confused and depressing, the outlook for New Zealand is better than for most countries.

That's despite the fact that demand for imports by the world's main economies is falling, to the detriment of exporting countries such as Australia, India, China and New Zealand.

While the global picture has convinced our local economists we are in for a hiding, not much has been said about the features of the New Zealand economy that will insulate us from the worst impacts of falling export prices.

Chief among these is our floating exchange rate. This is now favourably low for exporting, inbound tourism and attracting foreign students.

There also seems to be an assumption that New Zealand banks are no longer extending credit at normal prudent levels. Yet bank lending to businesses is in fact growing, and lower interest rates are making borrowing attractive.

The lower cost of home mortgages is increasingly beneficial to families, as are lower food prices. Then there is the positive impact coming from lower income taxes, greater public investment in infrastructure and who knows what other stimulatory action our Government may take.

With 40 per cent of our economy reliant on exporting, the floating exchange rate and makeup of our exports are both big pluses. Already the New Zealand dollar has fallen hugely against all currencies, and if the world recession gets worse, it will fall further.

The lower dollar will help maintain our exporters' incomes while imported goods cost more. It means New Zealanders will save more and spend less on big ticket imports, and fewer of us will travel overseas.

The fact that we have collectively been spending $1.14 on imports for every $1 earned from exports for a long time will begin to even out. In the last quarter of 2008 we spent $1.11 on imports for every dollar we earned in exports. This "overspending" will decrease further.

Hopefully, 2009 will turn out to be a year when we became more financially self-reliant. Retailers of imported goods will be among the worst hit. Their sales will fall and their purchases of new stocks will cost more. Many will manage the de-stocking and survive; others won't.

Once the de-stocking process is over, retailers here and everywhere else in the world will start to reorder later in 2009.

Overall, in New Zealand dollar terms, manufactured exports, including dairy, meat and seafood, earned 14 per cent more in 2008 than in 2007, a figure which was of course more than offset by the fall in the value of the New Zealand currency.

The dairy industry is coming off an extraordinary high and that's going to hurt, but the situation would be far worse if our currency was fixed. Likewise for aluminium and steel.

New Zealand dollar prices for exports of horticultural products and seafood are reasonably good and, though not great, other food and meat exports in particular, in New Zealand dollar prices, are holding.

So, while economists are lining up to tell us how bad business will be in New Zealand, you can take comfort from these facts:

* A floating exchange rate.
* The Official Cash Rate at 3.5 per cent will stimulate economic activity and will fall further.
* Interest costs to business and homeowners will continue to fall.
* More tax cuts are due on April 1.
* Finance markets will recover.
* Prudent bank lending is continuing.
* The Government will invest more in high rate of return public infrastructure.
* New Zealand's export profile is more favourable in times like these than those of countries such as China, India, Japan and even Australia.
* Over 90 per cent of those wanting work will have it throughout 2009.

All in all things are not good but New Zealand will do better than many other countries. I wouldn't be surprised if we see our economy bottom out this year and return to economic growth in 2010.

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