New Zealanders spend, debt soars and economy nears capacity
Sun Dec 28, 4:05 AM ET Add Business - AFP to My Yahoo!
WELLINGTON (AFP) - Surveys show New Zealand consumer confidence soaring and few concerns about the economy but the foundations of the country's "land of milk and honey" tag may not be as sturdy as they appear.
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Government coffers are overflowing but Finance Minister Michael Cullen has warned that despite the increase in "fiscal headroom" he will continue a cautious approach to maintain a buffer against future shocks and because the economy is already running at close to capacity.
From the outside, New Zealand bears all the hallmarks of affluence but internally the central bank is wrestling to control forces pulling in opposite directions.
It has so far resisted the temptation to cool a debt-fuelled housing boom by hiking interest rates but it has signalled it will take action in the new year to save exporters hurt by a strengthening dollar, now at a six-year high.
Reserve Bank governor Alan Bollard says the country faces "quite intense inflation pressures" in parts of the domestic economy.
Essentially, the soaring dollar and the feelgood factor of the housing boom are fuelling the internal spending spree which is powering the economy.
The strong dollar pleases consumers who see the price of imported goods plummet but exporters, who provide the backbone of the economy and are major employers, are suffering.
Even though exports were better than expected in November, and imports lower than forecast, New Zealand still ran a 400 million New Zealand dollar (256 million US dollars) trade deficit for the month.
The annual trade deficit is running at 3.1 billion dollars, up from 1.1 billion while internal debt levels are also rising.
Banks increased lending to the housing sector by 1.22 billion dollars in October and by 9.74 billion dollars in the first 10 months of the year compared to just 5.41 billion in the whole of last year.
Meanwhile, the latest Westpac Consumer Confidence quarterly survey released a few days before Christmas showed confidence at a seven-year high.
"Whatever the reason, there is an overall feeling that right now is about as good as it gets and that is raising general cheer," said Westpac chief economist Brendan O'Donovan.
The survey showed most people believe they are better off than they were a year ago and consumer confidence will continue to rise in the coming quarter.
Although house prices have risen more than 20 percent this year, the number of consumers who consider now a good time to buy a major household item has increased markedly, to a net 49 percent --- the highest level in the survey's history.
Doing better even than soaring house prices is the sharemarket with the benchmark NZSX-50 index rising 23 percent this year.
In an Asia-wide ACNielsen confidence survey this month, New Zealanders said they were the least concerned about their economy, with 48 percent saying it had improved over the past six months and almost all said they were spending spare cash after covering essential living expenses.
The government's December economic update showed it awash with cash and Cullen announced an extra billion dollars would be pumped into the next budget.
Treasury is now predicting growth in the year to March 2004 of 2.8 percent against the 2.2 percent forecast in the previous budget.
Growth in the following year is predicted to remain at 2.8 percent and thjen rise to 3.4 percent over the next two years.
"It doesn't get much better than this for the fiscal authorities," said Bank of New Zealand economist Stephen Toplis. |
