WELLINGTON: New Zealand Finance Minister Bill English said that Australia has a lot of work to do to rebuild its competitiveness, but the outlook isn’t as gloomy as he previously thought. The comments came after Mr. English spent a week visiting capitals and speaking to businesses in the country, which buys 20 per cent of New Zealand’s exports.
“After 30 years of growth and a minerals boom, Australia is just less competitive than it used to be,” Mr. English, said in an interview with The Wall Street Journal.The quicker Australia can embrace a new round of economic reforms, the better for New Zealand. “We do better when Australia’s better,” he said.
The story of New Zealand’s economic strength relative to Australia’s is told by their exchange rate, which has flirted with parity for the first time since the New Zealand dollar was floated in 1985.
The Australian and New Zealand dollars–both considered risk currencies because they tend to track volatile commodity prices–frequently move together.
However, their paths have begun to diverge as Australia’s economy remains under pressure as a decade long mining-investment boom cools, while New Zealand powers ahead.
New Zealand’s economy continued to expand in the fourth quarter despite recently waning dairy prices because other agricultural sectors have held up relatively well. The 40 billion New Zealand dollar (US$30.4bn) reconstruction of the country’s second largest city Christchurch, after a series of earthquakes in 2010 and 2011 devastated much of the area also helped.
New Zealand economy grew by 3.5 per cent on-year in 2014, compared with Australia’s 2.5 per cent. Unemployment in New Zealand is currently a 5.7 per cent, compared with 6.1 per cent in Australia.
The diverging economies also have led to a different outlook for interest rates. New Zealand’s central bank has signalled it will keep rates on hold at 3.5 per cent for some time, while many expect Australia will cut its cash rate further–which is already at a record low of 2.25 per cent.
