Still growing despite drought

The impact of last summer’s drought wasn’t confined to farmers and those who service and supply them.

It hit the wider economy but in spite of that annual growth still compares well with that in other OECD countries.

New Zealand’s economy continues to grow steadily, maintaining one of the higher annual growth rates in the OECD, Finance Minister Bill English says.

As expected, the severe drought earlier this year slowed economic growth in the June quarter, with statistics out today showing gross domestic product grew 0.2 per cent in the three months to June 30.

However, annual growth – from the June quarter 2012 to the June quarter 2013 – remained relatively strong at 2.5 per cent. This compares with growth over the same period of 2.6 per cent in Australia, 1.6 per cent in the US, 1.4 per cent in Canada, 1.3 per cent in Japan, 1.5 per cent in the UK and -0.5 per cent in the Euro area.

“It’s pleasing that despite the worst drought in 70 years, New Zealand still achieved one of the higher annual growth rates in the OECD,” Mr English says.

“While the June quarter was affected by a fall in agricultural production – down 6.4 per cent – growing conditions since then have been good, business and consumer confidence have been high and the Canterbury rebuild continues apace.

“All these factors mean that we can anticipate relatively strong growth resuming in the September quarter. As the Reserve Bank Governor has noted, New Zealand is one of the fastest growing economies in the developed world and that growth is expected to be maintained, and become more broadly based over the next couple of years.

“However, real risks and challenges remain in the global economy, especially for our most important trading partners. Today’s GDP result demonstrates the importance of the Government sticking with its proven policies aimed at keeping tight control of its spending, reducing the need for borrowing, and encouraging the job growth that in turn supports New Zealand families.”

Growth depends on both luck and management.

The drought was bad luck, that its impact wasn’t even worse was due to good management, including irrigation development.

The continuing uncertainty on the global financial scene is beyond our control, but good management by the government is having a positive impact on things it can control.

Much of the credit for that goes to the Finance Minister who is getting recognition for what he’s achieving.

. . . widespread respect for English, following his steady, careful performance as minister of finance through the worst financial crisis of the past 80 years, has been growing.

A complimentary remark by a respected American economist on English’s performance at a conference in Sydney recently, was not untypical and it prompted a highly regarded New Zealand economist, Matt Nolan, to comment: “This is not the first time I’ve heard people overseas sing Bill English’s praises [it is probably in double-digits now] . . . we have a finance minister who understands the issues and tries to communicate them clearly.”

English came to office with an economy that had already been in recession for almost a year, when the global financial crisis hit. He had a measure of luck – there was no housing bust and although there were nervous moments, the New Zealand banking system did not buckle.

But English responded to the crisis pragmatically and skilfully, avoiding severe retrenchment but focusing determinedly on reducing government debt and balancing the budget. Contrary to opposition propaganda, the government did not bring with it any dogma or hidden agenda.

A shock could, of course, upset things. The balance of payments deficit and overseas debt continue to be relatively high and to cause concern. But English’s overarching goal of getting the Government’s books in order, which looked hopelessly remote five years ago, now seems achievable, if only by a whisker, next year.

He has also made it a habit to lucidly explain not just the benefits, but also the trade-offs his policies involve. There may be much in the economy to criticise, but it has not been possible to persuasively do so with cheap populism and glib sound-bites. . .

In spite of criticism from the left, the government’s policies haven’t been slash-and-burn ones.

They’ve been a careful mix designed to reduce the burden of government, maintain public services and encourage export-led growth.

Some policies have required an increase in funding but that’s been done with the knowledge that more spent now in some areas will pay-off with reduced costs in the future. Helping people from welfare to work is an example of this.

National is on track to surplus next year in spite of the financial and natural disasters it’s faced.

Labour was forecasting a decade of deficits before the global financial crisis struck and promises made by its new leader David Cunliffe during his campaign show growth we’d be going backwards again if they were in power.

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