New Zealand Prime Minister John Key secured the nation’s first majority government in almost 20 years on a promise to maintain a strong economy, but slowing growth in China may challenge his outlook and also threaten fiscal discipline.
Key’s center-right National party stormed to a third straight term in general elections on Saturday after promising to stay on the path of economic growth and fiscal prudence, despite one of the roughest campaigns in recent years.
National steered New Zealand’s economy back to growth after the global financial crisis, with rising immigration and building projects in the largest city, Auckland, and in the earthquake-hit Canterbury region also boosting demand and investment. Dairy exports, which account for one-quarter of all goods New Zealand sells overseas, have also soared.
Photo: Reuters
New Zealand’s relatively small economy has outperformed many of those in developed countries, with data in the past few days showing growth at an annualized 3.9 percent in the second quarter, its fastest pace in a decade.
However, the government and economists expect growth to moderate in the coming years as New Zealand feels the impact of rising interest rates and an historically strong domestic currency. A slump in global prices for dairy products is seen knocking the terms of trade from a 40-year high.
Slowing growth in major trading partner China could also sting the New Zealand economy if it curbs demand for agricultural exports, economists say.
“It’s still not clear how much the Chinese economy is slowing... China is an issue for New Zealand because they’re our largest trading partner and impact our commodity prices,” Deutsche Bank New Zealand head economist Darren Gibbs said.
The government has pledged to maintain the “status quo” on economic policy, but Gibbs said Key’s plan to balance the books from next year onward could be challenged by external factors, along with rising incomes.
“National is pretty committed to achieving a surplus, but it will be very difficult to build extra surpluses. As the labor market tightens, pressure is going to build to pay public servants more,” he said.
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