Michael Pascoe writes about the NZ economy in the Sydney Morning Herald.
It‚Äôs bad enough losing the rugby, but in 2014 Australians will have to suffer Kiwis getting uppity about their economy as well.
While our economic growth is stuck around 2.5 per cent, there‚Äôs talk New Zealand could be doing double that by the middle of the year.
For so long the poor cousins across the ditch, it‚Äôs the Kiwis‚Äô turn to ride the China resources roller coaster, with all the fun and fear that can engender. The commodity is different but the fundamental story is much the same as the China boom that lifted Australia over the past decade.
What iron ore and coking coal did for Oz, milk powder is doing for New Zealand. Forget the clich√©s about New Zealanders and sheep ‚Äď it‚Äôs cows that are making Kiwis feel good now, as well as the All Blacks having an undefeated year.
And they are feeling good. An ANZ bank survey this month found NZ businesses the most confident they‚Äôve been since 1994. House prices and wages are rising and consumers are spending more ‚Äď the government is expecting consumption growth of 2.8 per cent while Australia struggles to manage 2 per cent.
New Zealand‚Äôs terms of trade are at their highest since 1974, giving the average Kiwi sharply stronger buying power. It‚Äôs not so expensive for Kiwis to visit the relatives in Australia ‚Äď but the land of the strangled dipthong is no longer a cheap holiday for Australians. The Kiwi dollar started the year above $1.26 to the Aussie. It‚Äôs finishing at $1.09.
Milk powder prices are up by more than 50 per cent this year and China has overtaken Australia as New Zealand‚Äôs biggest trading partner. Fonterra, the world‚Äôs biggest dairy exporter, can‚Äôt keep up with the demand and¬†finds itself caught by its cheese and butter operations holding back overall performance.
The impact of Chinese demand for milk solids is also behind the never-ending Warrnambool Cheese and Butter takeover saga. It must sadden those who saw productive Victorian dairy farms turned over to tax-driven blue gum plantations.
Its all about protein…and we are best at producing it, whether it is in milk or meat. Pascoe trips up though and quotes Bernard hickey who is more often wrong than right in his prognostications.
But the extent of New Zealand‚Äôs reliance on a single commodity and a single customer worries some. New Zealand Herald commentator Bernard Hickey¬†makes the point that the country‚Äôs second-largest trade partner, Australia, also is reliant on China¬†and that Kiwis carry much more debt than when they last depended on a single market ‚Äď England. He didn‚Äôt use the term ‚ÄúDutch Disease‚ÄĚ, but it was there between the lines.
Just as China has encouraged a greater diversity of iron ore sources, it can be expected not to rely indefinitely on NZ. The Middle Kingdom also desires to increase and improve its own dairy capacity, but faces water limitations for what is a very water-intensive industry. (That‚Äôs why those soggy Kiwis are so good at it, despite suffering what they thought was a drought last year.)
In the meantime, the $NZ40 billion rebuilding of Christchurch will provide its own increasing stimulus for the NZ economy. The Reserve Bank of New Zealand is expected to start increasing interest rates in 2014. It‚Äôs already attempting to cool the housing market through macro prudential means ‚Äď a move the Reserve Bank of Australia admits it‚Äôs watching with interest. And rising rates should further support the Kiwi dollar.
While our Treasury forecasts Australia‚Äôs unemployment will nudge up to 6.25 per cent, New Zealand‚Äôs is 6.2 and falling from a high of 7.3 last year, twin factors that can be expected to reduce the usual migration flow. Australia has done well out of its Kiwi migrants. Given the direction of the New Zealand currency, we might have left it a wee bit late to stock up on five-eighths and sauvignon blanc.
Yet there‚Äôs always a silver lining. The last time Kiwis were this chipper was 1994 ‚Äď when the Wallabies won the Bledisloe Cup with ‚Äúthat tackle‚ÄĚ by George Gregan. Maybe a richer New Zealand also is a softer one.