26 Jun 2016

NZ needs to 'buckle in' after Brexit

12:15 pm on 26 June 2016

New Zealand's economy is in for a rough period according to BERL chief economist Ganesh Nana, who said the shock exit is a body-blow to the global outlook.

Dr Ganesh Nana, Chief Economist at the consultancy BERL

Ganesh Nana is warning New Zealand to "buckle in". Photo: Supplied

In its latest forecast, the economic research and analysis company BERL said underlying weakness in Europe, geo-political upheaval and the potentially disruptive US presidential election campaign all bring a period of uncertainty, vulnerability and fragility.

And Dr Nana warned New Zealand needed to "buckle in for the coming months, they will be neither smooth, nor enjoyable. We're in for a rough period."

He said while this country has experienced six years of economic growth - as measured by gross domestic product - broader measures of economic health suggest the economy is not well-prepared for global turmoil.

While the fall-out from Brexit will have implications, Dr Nana said, China also remained the elephant in the room.

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Dr Ganesh Nana, Chief Economist at the consultancy BERL

Supporters of the 'Stronger In' Campaign react as results of the EU referendum are announced Photo: Supplied

Over the weekend both Prime Minister John Key, and the Trade Minister Todd McClay said New Zealand's economy was diversified and robust enough to weather the Brexit fallout.

A fresh trade deal with the United Kingdom would be sought in the longer term and New Zealand was also hoping to launch negotiations for a free trade deal with the EU.

New Zealand's trading relationship with Asia, in particular China, has been highlighted as one of the ways the economy has diversified. Export New Zealand has said Asia accounts for 50 percent of this country's food exports.

But Dr Nana said growth in China was a worrisome unknown and the potential impact of an upheaval in the UK could not be understated.

"There is no way New Zealand will escape the short and longer term fallout from such global disruption."

Dr Nana said that while New Zealand's recovery from the 2010 recession had been impressive, and six years of growth averaging an annual 2.5 percent was not to be sniffed at, he questioned how robust the growth was.

"Growth driven by specific construction elements - Christchurch, Auckland housing, and regional roading - that are more catch-up maintenance than productivity-enhancing capacity expansion leaves one asking whether the gains are indeed material."

Dr Nana said Auckland house prices remained a risk, particularly as an excess of global funds look for places to invest and there is an "absence of any genuine government appetite to rectify the asset price imbalance".

The country's relatively high interest rates compared with around the globe is also likely to mean a return to the attractiveness of the New Zealand dollar, Dr Nana said.

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