New Zealand’s economic recovery is benefiting from stronger Asian demand for agricultural commodities and export prices that may remain elevated in the next two years, Finance Minister Bill English said.
Prime Minister John Key’s government last week forecast New Zealand’s economy will grow 3.8 percent in 2012 and 3.3 percent in 2013, buoyed by shipments and a rebuilding after an earthquake hit Christchurch in February. Prices of milk powder and cheese have been supported by demand from China, while shipments to Australia have increased as that economy experiences a boom in demand for minerals.
“We are hooked to the China-Australia train,” English said of the world’s biggest dairy exporter. New Zealand’s story “is more about food and protein” and the demand for those products across Asia “is reasonably solid,” he said.
New Zealand’s dollar extended a decline after English’s comments, falling to a low of 79.15 U.S. cents from 79.91 cents in late New York trading yesterday. It bought 79.3 cents at 3 p.m. in Wellington.
Exports from the South Pacific nation to China surged 42 percent to NZ$5.39 billion ($4.3 billion) in the year ended March 31, according to government figures. Sales to Australia rose 9 percent to NZ$10.15 billion, making that the biggest export market.
Prices of New Zealand’s commodity exports gained for an eighth month to a record in April, according to an index calculated by ANZ National Bank Ltd.
Shipments have gained even as New Zealand’s currency has appreciated about 18 percent against the U.S. dollar the past year, a rise English said was stronger than the government expected.
“It’s a bit of a headwind as we try to rebalance our economy, but I must say that New Zealand exports seem to have shown remarkable resilience,” English said. He doesn’t expect current high commodity prices to remain in place, although they are likely to be “fairly solid for the next few years.”
In his May 19 budget, English forecast New Zealand will return to a surplus in 2014-15 as it cuts spending and benefits from faster economic growth, spurred by rising commodity prices and rebuilding of earthquake-damaged Christchurch city.
Standard & Poor’s, which has New Zealand’s AA+ sovereign rating on negative outlook, signaled the nation’s credit rating is secure as long as budget targets are met, while adding the focus is on the external debt of the whole economy, which is led by private borrowing.
New Zealand’s savings rate is improving and the budget is returning to surplus, and “it is likely the ratings agencies will be able to respond positively” to that, English said.
English said New Zealand’s government wants to complete a free-trade agreement with India within six months. He also said the nation is “keen to see a selection based on merit” for the new head of the International Monetary Fund.
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