Prime Minister John Key is talking up the chances of economic growth for a "considerable period of time" in the United States as part of his defence of the New Zealand Treasury's Budget forecasts, following a week of market turmoil which sparked fresh global recession fears.
The US government had its credit rating downgraded from AAA to AA+ by ratings agency Standard & Poor's just over a week ago, while a worsening sovereign debt crisis in the Eurozone compounded the damage to send global markets tumbling. Markets recovered somewhat after the US Federal Reserve said it would leave US interest rates near zero over the next two years.
Investors also interpreted the Fed's statement as indicating it would not be afraid to undertake a third round of quantitative easing - or money printing - to try and kick-start the US economy.
Speaking on TVNZ's Q&A programme on Sunday, Key defended Treasury's growth forecasts, which bank on growth in New Zealand's major trading partners - Australia, China, the US and Europe.
"I feel as confident as I can. I mean, we’re not naïve - New Zealand is part of a global world. But if you have a look at just the starting [growth] predications - Treasury were originally saying the first quarter of 2011 would be -0.5%. In fact it’s been positive: 0.8%," Key told TVNZ's Guyon Espiner.
The market turmoil over the last week did not necessarily mean there would be no economic growth in the United States over coming years.
"What I’d say in the US is, yes, they’re keeping their interest rates at zero. Doesn’t necessarily mean there’ll be no growth," Key said.
"It means they’re not predicting a lot of inflation in their economy. There’s a lot of spare capacity in the US. You’ve got an unemployment rate sitting at 9.2%, but you’ve got an unofficial unemployment rate sitting at 14%. So I think what the US is saying is, ‘Look, we could grow for a considerable period of time and actually not have those inflationary pressures,'" he said.
The New Zealand government had no reason to back away from its projection of 170,000 new jobs being created over the next four years, and a surplus track aiming for 2014/15.
"At the end of the day, obviously if there’s a strong United States and a strong Europe, that helps New Zealand, and if there’s not, that can have some impact," Keys said.
"But there are a number of different factors going on. I think in China, for instance, that’s really one very critical market from our perspective because the Australian economy is very closely correlated with China. So if China slows down, Australia slows down and New Zealand slows down. The second thing is you’ve got demographic changes there. You know, more middle-income people coming on-stream," he said.
"As those commodity prices come back, you will see the exchange rate come back. We’ve got domestic issues - Christchurch rebuild adding about 1.5% of GDP."
5 Comments
PM - we can do better !
Prime Minister, I hope that video helps you to understand economics and put New Zealand on a different course, without lying to your people.
http://www.youtube.com/watch?v=EQqDS9wGsxQ
PM - are you still a trader or a real leader of New Zealand ?
The US Federal Reserve is not expecting growth.
I think they fear deflation more than inflation.
Growth with low inflation??? My goodness this mans blinkers are on, still trying to stick to the doctrinal party line that everything's going to return to normal. Even America is realising they're not going to be ok. When are we going to switch to plan B and accept a low growth environment and budget accordingly.
Meanwhile they're still looking at plans to lower taxes on high earners, while I'm not saying we need to go back to the 50's-60's type taxes on high earners (ala PIMCO) I certainly don't think we need them cut.
You have cornered Key well - either he is clueless about economics, a lier, or both.
Exactly, the guy is appearing more idiotic by the day.
The US may grow at times over the coming years, but in all likelihood such growth will be volatile and sluggish. It is the likely quantum of growth that is the issue, not whether or not there is growth. The same for Europe. And this WILL slow China. Of course China might still have reasonably strong growth, but it is likely to be slower.
All of these factors will impact on NZ economy.
It's not necessary all doom and gloom, but nor is it as rosy as JK seems to be suggesting it could be
Also, Key defended treasury, then pointed out the following:
Treasury were originally saying the first quarter of 2011 would be -0.5%. In fact it’s been positive: 0.8%," Key told TVNZ's Guyon Espiner
Doesn't that just confirm that they are poor forecasters and we shouldn't trust them?
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