The news out of Europe, China and Australia is looking worse by the day. Bernard Hickey spelt out the consequences for New Zealand this morning:
A concerted slowdown in the global economy and the inability of China to restart its strong economic growth would bear down on both economic growth and inflation in New Zealand. That would mean lower interest rates for longer and slower economic growth for longer, along with higher unemployment, particularly if the Australian economy slows further and is unable to soak up surplus labour from New Zealand.
At least David Parker has identified the problem – the National government’s aversion to growth policies. He said today:
More instability in global markets is laying bare weakness in the New Zealand economy. That instability makes it more urgent to modernise the New Zealand economy to grow exports, jobs and wages, he says. “Poor economic news in the US, Europe and China, a drop in the Australian share market and instability in Greece are all contributing to unsettled markets. “But they are not the cause of New Zealand’s slow economy.
“The more unstable the global economy becomes, the more urgent it becomes to modernise the New Zealand economy with more exports encouraged by pro-growth tax reform, deeper savings and more innovation, “It is also imperative that the Canterbury rebuild is not further delayed, as this is an important part of economic activity in the next few years.”
Parker also laid out the options and consequences in a pre-Budget speech calling for change in the old orthodoxies. He’s absolutely right – time for change is well overdue. What’s coming at us doesn’t look pretty. I was about to do a post saying I hoped someone in Labour was doing some scenario planning and was very pleased to see that someone in politics has their eyes open.