Global slowdown will hit NZ hard: NZIER
Next 12 months will create tough conditions for job creation and govt's books.
Tuesday, November 29 2011 || News || BY James Weir, Businessday.co.nz
If the global economy worsened, the Reserve Bank may need to start slashing interest rates, but the Government had to stick to its plans to balance the books and rein in spending, NZIER said.
"The next 12 to 18 months will be very challenging and perhaps more challenging than we've been used to," according to Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research.
The economy was likely to be flat for the next 12 months or so. Government forecasts about economic growth were "far too optimistic" and the country would be surprised by the fall, he said.
"It is going to be harder to create jobs and harder to get the government budget back into the black by 2015," he said.
With a global picture that was "very challenging" the re-elected National government needed to come up with the best policies and a "game changing" plan to boost productivity.
A European slowdown would hit exports, tourism and the ability to borrow, as well as hitting New Zealand's other trading partners.
"The situation is far scarier than people realise," he said. "Being so far away it is easy to feel insulated even though we are not."
Even if the eurozone survived, the Reserve Bank could not even contemplate raising official interest rates till the middle of 2013.
"It depends on how severe the global slowdown is," he said. "We are at the fork in the road and we don't know which path we are going to take," he said.
