The amount we have to borrow from the rest of the world – because the high dollar is killing our exporters and allowing importers to undercut our domestic businesses – is due to hit $17b a year by 2016. Our current account deficit is already the 2nd largest in the developed world and will be hitting disastrous levels. But English says ‘don’t worry, if that happens, our economy will just collapse, Greece-style’.
Now, in fairness, English disagrees with all the forecasters, who say the current account deficit is heading to the 7% of GDP danger zone. His disagreement is based on… optimism:
Mr English yesterday told Parliament’s finance and expenditure select committee he believed the current account deficit – the balance between the country’s earnings and expenditure – would peak at 5 per cent or 6 per cent of gross domestic product (GDP).Forecasts suggest it may go as high as 8 per cent. In September, the deficit widened to $10.1 billion, or 4.9 per cent of GDP.
Labour MP Clayton Cosgrove asked what Mr English knew that the International Monetary Fund, Reserve Bank and Treasury did not. “What do you base your prediction on? Evidence, data, crystal ball, best guess?”
Mr English said he was more optimistic than other forecasters, who expected New Zealanders to return to their high-borrowing ways.
I don’t think English himself is a forecaster, by the way. He’s not running forecast models personally, so what he says are guesses, not forecasts.
But what chills the blood is English’s justification for why the current account deficit won’t/can’t get to disaster levels:
“I don’t think the world will let us run 7 and 8 per cent current account deficits. I think you would get the kind of sharp adjustments that the textbooks tell you would happen in the exchange rate or interest rates. I think the world will punish us more quickly if it gets out of line.”
So, it can’t happen because, if it did happen, our exchange rate would suddenly plunge and interest rates would go through the roof. What English is saying is that we’re on the path to a Greece-style crisis but, for some reason, the markets won’t let that happen.
I guess we had all better join in praying to the market gods, because it’s clear that English doesn’t view it as his job to do anything about the fact we’re barreling at top speed towards a cliff.
(while I’ve been writing this, English has been on Morning Report shrugging his shoulders about the likelihood the economy is contracting and saying that there are no conditions which would make National change its failed economic policies. They really just don’t give a damn – as long as there’s public wealth for them and their buddies to suckle on, they don’t care)