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ECONOMY IS UP TO CHALLENGES

By Lawrence Johnston

NEW Zealand is better equipped to weather the global slowdown than many other nations. That is the view of the nation's Finance Minister Michael Cullen.
In a speech to the Wairarapa Chamber of Commerce last month, Dr Cullen referred to two barometers of the nation's economy - the Treasury and the Reserve Bank - both of which are operationally independent of the government.
The Treasury's latest monthly economic update had noted positives that would help offset the weak outlook.
These included the nation's terms of trade, which were at record highs, a labour market which remained strong as measured by New Zealand's record high labour force participation rate, and the lowest jobless rate in over 21 years.
There was also production from the Tui oilfield which would lessen the impact of higher global oil prices than might have happened in the past, and the increasing demand for dairy products from oil-producing nations amid spiralling oil prices.
The Treasury's prediction was more modest economic growth this year than had been the case since 2000, and than had been anticipated late last year, and more modest than the rate, the country could anticipate returning to once the world economy recovered.
Echoing this picture in a speech to the Marlborough Chamber of Commerce, Reserve Bank Governor Dr Allan Bollard said the New Zealand economy was "fundamentally sound and creditworthy," the underlying trend remained "robust," and he saw the current slowdown as a "cyclical adjustment."
To his Wairarapa audience, Dr Cullen said real, bankable economic and business dividends would come from the social investments that the government had made.
In an increasingly borderless international economy, New Zealand had a competitive advantage as a trading nation from the heavy investments the government had made in the health, education and skills of its people.
He was speaking just days after New Zealand had become the first developed country to sign a bilateral free trade agreement with China (see story back page).
And he said he had no doubt that in ten years' time, New Zealand's merchandise and services exports, and its international investment links, with the re-emergent powerhouse economies of central and east Asia, would be "significantly" greater than what they were today.
Ten years hence, New Zealand's exports would be higher as a proportion of its gross domestic product (GDP) as the country continued to positively adjust to falling barriers to those products where it had a competitive advantage and as New Zealand-based firms grabbed more opportunities.
The country's sustainable growth rate would be higher, thanks to "significantly increased" investment in skills, training, international linkages and changes in business, research and development (R&D) and savings taxation in this decade.
Household savings behaviour would be stronger and savings patterns more diversified than at any time in New Zealand's recent history, assisted by the introduction of KiwiSaver.
The nation's capital markets would be deeper and more diversified, its net international investment position would be stronger, and the make-up of New Zealand society would be "significantly" more varied than at any time in the nation's past. That diversity would bolster the nation's exports.
"The skills of our people will be more internationally competitive than at any time since our nation was established," he said.
New Zealand was not immune from the weakness of the US economy, and the outlook for the remainder of 2008 was "challenging".
Also, the world economy was in for a period of weaker growth than at any time since the start of the century, but New Zealand had entered 2008 enjoying the longest period of economic growth since World War II.
That had been manifest in having its lowest unemployment rate on record, more people in work than ever before, and household incomes, wages, and profits all having increased strongly since the start of the century.
"We should not, even for a moment, take our eye off the prize before us as a nation - rising wealth and opportunities for social advancement for all our people, in the years ahead," Dr Cullen said.