For the first time since it floated the New Zealand dollar is heading for parity with its Aussie equivalent. Some of the commentary is pretty naff, describing the situation in testosterone flavoured terms. The New Zealand dollar is “strengthening” while the Australian dollar is “weakening”. And in a bird related term according to the Herald our dollar is soaring.
The analysis is superficial in the extreme and hides what is becoming a significant economic problem. And also shows how the Government’s cupboard of economic policies is bare.
The Irascible Curmudgeon recently reposted this fascinating article on New Zealand’s economic predicament by Raúl Ilargi Meijer of the Automatic Earth blogsite, a site I have not read before. The analysis is sharp and compelling if somewhat terrifying. Basically we are heading into a really difficult times because of international forces beyond our control and a Government that refuses to even acknowledge that structurally we are unable to deal with these forces.
Firstly the Reader’s digest version of Australia’s current economic malaise. China had previously been buying huge amounts of steel and coal from Australian companies for construction but more recently sales have plummeted. Interestingly New Zealand’s timber exports, heavily used for boxing concrete in China, has also plummeted.
New Zealand’s “well performing” economy is based on confidence caused by surging land prices particularly in Auckland and historically high earnings by dairy farmers. But milk and butter fat prices have recently taken a hit and the pressure on farmers is intensifying. If you want a distressing statistic to validate this then the number of farmer suicides is growing substantially. High prices meant that some over leveraged themselves into farms and when the price collapsed their situations were cruelly exposed. And the housing market is out of control with more and more Kiwis being unable to buy a house in their own country.
Some other comments made by Meijer:
Meijer’s conclusion?
Back to New Zealand’s reality for the vast majority of people, who will never be able to fork over 100s of 1000s of dollars for a house. People like the workers in the timber industry, who see slowing Chinese demand translated into job cuts both for those who cut the trees and those who transport them.
Again, a dumb idea to base a whole industry around one client, but the men and women who did the job were just glad they had work. And now they don’t anymore. Jobs that in all likelihood will never come back again. China won’t have another debt-financed growth spurt, and there are no other candidates waiting on the horizon.
And that’s all a big shame. New Zealand is not poor, but it’s by no means as rich as Australia or Canada or Germany or the US. What it does have is the potential to be largely self-sufficient. A potential that is being squandered in order to play with the big boys of globalized trade.
New Zealand has only 4.5 million citizens, one third of which live in Auckland. It has vast tracts of productive land that are now used to feed export oriented cows and American pines, neither of which are even native. It could have a great shoe industry, plenty of leather, and a textile industry, plenty of wool. But New Zealand, like everyone else, imports such basic needs from China. While having scores of unemployed people. When will that light go off?
Meijer is particularly scathing about John Key.
The country’s prime minister since 2008, John Key, used to work at Merrill Lynch and the New York Fed, and that sort of background guarantees valiant efforts to sell anything in the country that’s not bolted down, and take an axe to what is. It also guarantees zero initiative to become self-sufficient.
Speaking of Key he was interviewed on Radio New Zealand this morning and was at his dissembling best. He thinks that parity is a measure of New Zealand’s sound economic policies, not the influx of overseas money seeking to buy land or the influx of insurance money required to rebuild our second biggest city. He says that confidence is high and a high dollar has had no effect. He should talk to these people. He claims that low oil prices is helping New Zealand businesses. Well they are but they are helping businesses world wide and are doing nothing about competitiveness. And he states that he has no control over the Reserve Bank and interest rates despite the Bank being a creature of statute and subject to Parliamentary control.
He thinks that because manufacturing companies import equipment and parts there is no significant effect. If we were exporting goods with high imported content that may be right but milk, timber and meat do not have any imported components.
Andrew Little had a chance to respond. While Suzy Ferguson gently questioned Key Espiner ran Government attack lines against Little. Little had the perfect response by asking Espiner to listen to his answer and to comprehend what he was saying.
So we have a situation where Australian holidays and goods are cheaper for Kiwis but Kiwi holidays and goods are more expensive for Australians. The upside is where?
Obviously we are in for more of the same where a slight tremor in the dairy market could spell gloom for us, and where we rely more and more on low paid tourism jobs to keep afloat. If only we had a Government with a plan for our economy.
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