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Savings Group warns NZ economy vulnerable

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Fuseworks Media
Fuseworks Media
Bill English
Bill English

Wellington, Nov 23 NZPA - The group working on ways to improve New Zealand's savings, reducing its reliance on overseas debt, says the economy is in a vulnerable position and measures to correct the situation are likely to be challenging.

International credit rating agency Standard and Poor's revised New Zealand's outlook from stable to negative yesterday as a result of what appeared to be a stronger focus on countries with high levels of indebtedness.

New Zealand's external debt, from households, business and government, was $170 billion, up from $90b in 2000 and forecast to nudge above $200b in the next few years. Much of that was private debt.

Savings working group chairman Kerry McDonald said economic growth had been skewed away from export-oriented areas of the economy over the past decade, with output and employment in the vital export sectors of manufacturing and agriculture declining over the last five years.

That contributed to unsustainably large balance of payments deficits, and to a sharp increase in net foreign liabilities.

Shifting the structure of the economy towards exports and savings, and lifting productivity especially in the government sector, were critical issues, Mr McDonald said in a speech to the Taihape Rotary Club tonight.

Over the past decade New Zealand's productivity growth had halved, and the performance of the non-tradeable sector -- not exportable and dominated by the service sector -- was particularly unsatisfactory.

As a result of adverse developments including the rapid growth in credit and the consequent bubble growth in house and farm prices, the economy was now in an unsustainable position and corrective measures were likely to be challenging, he said.

There had been a recent sharp rise in household savings, largely due to a weak economy, but of more pressing need was an increase in national savings to help create the right conditions for a long-term structural shift in the economy.

Earlier, Finance Minister Bill English said New Zealand was actually in a better position than 12 months ago when the outlook rating was lifted, and the Government was focused on reducing external debt and increasing savings.

"I think what's happened is because of the Irish bailout -- the financial markets where we borrow billions of dollars a year are more sensitive to how much debt countries have and New Zealand has one of the highest rates of external debt in the developed world."

Mr English said the international debt market would become tougher in the next few years as Britain, the United States and other large countries looked to borrow hundreds of billions of dollars.

"It'd be better if we had less need for overseas debt, and this is a bit of a warning that over the next few years it could get a bit tougher."

The Government knew what it had to do to improve New Zealand's position and was focused on doing that rather than arguing with ratings agencies, Mr English said.

He believed the impact of a downgraded outlook on the economy would be minimal.

Labour leader Phil Goff said the Government had no plan for an economic recovery.

"The very first thing this Government did was to cut KiwiSaver and to cut the Cullen Fund, and what the credit agency has said is that this country is not saving enough."

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