NZ too reliant on Aussies' 'China
effect': economist
By Tamsyn
Parker
4:00 AM Monday Mar 29, 2010
New
Zealand is too reliant on Australia
continuing to grow wealthier based on demand from China, a global economist has
warned.
London-based Andrew Hunt, who visited New
Zealand last week, said much had been made of the "China effect" in Australia.
But in reality figures showed Australians had been digging themselves into
more debt over the past year and disposable incomes in the "lucky
country" were likely to fall this year.
"Although much has been made of the 'China
effect' in Australia,
in reality net trade flows have subtracted from incomes and GDP of late."
Hunt said Australia
had avoided a recession only because of low interest rates and its fiscal
stimulus packages.
But now these were being eased back Australians could see their disposable
incomes fall from a 10 per cent increase to minus 2 per cent.
"My biggest concern [for New Zealand] is the Australian
growth which everyone is relying on doesn't come through."
Hunt, who owns a house in Wanaka, said his impression of New Zealand was that people were "a little
too sanguine about Australia".
"From the Government down there is a view that Australia will be right and
therefore we will be right."
Australia's consumer
confidence was boosted by Chinese demand for its minerals but an easing in China's growth was inevitable and Australia
could feel the blow to its confidence.
Hunt said a significant fall in food production in China had pushed up food costs by
about 30 per cent and property prices had also risen, placing huge demands on
wages. "Inflation in China
may be as high as 15 per cent and 30 per cent in the cities."
Hunt said New Zealand
was also likely to be hit by the Chinese inflation as imported goods got more
expensive.
New Zealand's
central bank faced a difficult challenge in trying to balance all the issues
while easing off this country's economic stimulus, he said.
The Reserve Bank has indicated it will begin raising the official cash rate
in in the second half of this year.
But Hunt said the higher rate could encourage more foreign investors, again
pushing up the kiwi dollar and making it harder for exporters.
"My concern is that New
Zealand might face quite a tightening of the
monetary policy. A higher rise and stronger currency could lead to much softer
confidence."
By Tamsyn
Parker | Email
Tamsyn
