By Bernard Hickey
Treasury Secretary Gabriel Makhlouf is confident the New Zealand economy can handle the economic and financial turbulence coming from Greece and China, thanks in part to a still-solid Christchurch rebuild and strong tourism growth.
Speaking in an interview on Monday morning after the surprise Greek ‘no’ vote in a referendum on a fresh austerity and bailout plan, he said there was a much lower risk of GFC-style financial contagion hitting New Zealand.
“We feel we’re pretty well placed to manage that,” Makhlouf said of the latest financial turbulence in the Euro Zone.
“The world took a lot of learnings out of the GFC,” he said, pointing to discussions at a G20 level last year that New Zealand was party to. “I’m confident that what needed to be done has been done.”
The European Union, which included Britain, was also only responsible for buying 10% of New Zealand exports and the Greek economy only represented around 2% of the European economy.
Makhlouf said he had been particularly aware of the situation in Greece, in part because his half-Greek mother had retired to Greece and was providing him with daily updates on the situation and the referendum, which voters had been uncertain about.
‘China more concerning, but not in longer run’
Makhlouf said the financial stresses emerging in China were more of a concern for New Zealand, but he remained confident over the medium to longer term.
He said the 30% fall in China’s stock market in the last three weeks needed to be put in the context that the market had risen very quickly earlier this year and remained a much smaller market relative to its economy than, for example, the US stock market.
Makhlouf was also not overly concerned by China’s slowing economic growth rate and pointed to New Zealand’s exports to China still having risen over the last four years despite a slowing of economic growth there. He saw China’s economic growth rate in 2015 being more than 6% and that this was natural part of China’s shift from an investment and export-focused economy to a more domestically-driven services economy.
“I remain pretty confident of the ability of the system to adjust,” he said of the Chinese economy, noting that high local government debt was a risk that had been known about for some time and China’s housing market was not highly leveraged, unlike the US housing market before the 2007/08 GFC.
China’s middle classes would continue to grow and New Zealand was in a strong position to benefit from that.
“I’d much prefer to be selling into a market that’s growing at 6% than one growing at 1.9%,” he said.
Makhlouf was also confident that New Zealand’s banks would continue to support the majority of dairy farmers, despite a second year of low payouts, citing feedback he had received from bankers and farmers at the Field-days.
He said Christchurch’s rebuild was still solid, given a strong pipeline of work in the CBD was taking over from a slowing residential rebuild. He also pointed to strong tourism services exports, which made up 16% of exports in the year to the March quarter and had risen 13.7% to NZ$10.7 billion in the last year.
‘Auckland is all about supply’
Elsewhere, Makhlouf said Auckland’s over-valued housing market could only be addressed by more supply in the longer run and observers should not rely on any slowing of migration or foreign investment to take the pressure off house price inflation.
He said the Government was watching the Unitary Plan process in Auckland closely, where an Independent Hearings Panel was now assessing the potential of the provisions in the plan to match housing supply with demand over the longer term.
“We see the Unitary Plan as an absolutely crucial moment where the Council can make a difference,” he said. He added he saw a recent push from the Panel to ensure Council’s modelling of the Plan showed enough supply to meet demand as a positive thing.
“The challenges of NIMBYism are pretty tough for the councillors and they have to be creative as to how they manage that,” he said.
“There are parts of Auckland where you can have more apartment blocks and more densification.”
Makhlouf said the Treasury was “fully at one” with the Reserve Bank in its efforts to manage the financial stability risks of Auckland’s housing market, and in particular its latest move to restrict loans with an LVR of over 70% to rental property investors.
“But people who think we’re going to solve the housing problem in Auckland by using LVRs are mistaken. Supply is the answer.”