English Says New Zealand Export Outlook May Hinder Recovery

By Tracy Withers

June 17 (Bloomberg) -- New Zealand exporters are being buffeted by a rising exchange rate, high costs and weak world markets that may delay a recovery of the broader economy, Finance Minister Bill English said.

“It’s preferable that growth comes from the export sector but the reality is it’s not in great shape,” English told parliament’s finance and expenditure select committee in Wellington today.

New Zealand is in its deepest recession in more than three decades and the economy may not return to growth until late this year, the Treasury Department said last week. New Zealand’s dollar has gained 19 percent against the U.S. currency the past three months, reducing returns from exports that make up 30 percent of the economy.

“The classic recovery profile would be a drop in the exchange rate that charges up the export sector,” English said. “At the moment, conditions don’t look that good for that.”

Exporters face rising domestic costs and high debt levels, he said, adding investment has fallen because the export industry has been contracting.

“We’re bundled up with other commodity currencies so exporters are facing quite high exchange rates when they expected to be facing a low exchange rate,” he said. “Over the next 12 months some of those things might unwind, like the exchange rates, but the debt situation won’t.”

English said that the output from tradable sector, which includes exports, tourism and industries that compete with imports, has shrunk 5 percent the past five years.

“The international part of the economy is flat on its back, it’s been in recession for five years,” English said. “The conditions looking forward aren’t too flash.”

English said the government’s strategy to kick-start exports includes bolstering spending on roads and railways, and reducing regulation that may hinder investment.

“We’re not going to be able to grow on the back of just going out and resuming the borrowing we had,” he said. “There is a lot of work to try and get the export sector back to a competitive state.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.