NZ can’t help but

Import any global slowdown

Grant Robertson has so far had a charmed run as finance minister. Attacks from the Opposition and corporate interests have only made the economy’s performance since the end of 2017 feel more impressive. When he took the role, National was dismissing Robertson’s ability to meet both the coalition’s spending promises and meaningful debt targets. But in each major update since, the Treasury has presented surprisingly strong figures, culminating in a massive Budget surplus in 2018.

Part of the surplus was down to timing, but for the time being at least, targets which once looked lofty currently look quite achievable, prompting pressure for Labour to spend more.

Business confidence tanked in the early part of 2018 when the Government announced a political deal had been struck to curtail the oil and gas industry, one of a string of reforms which created uncertainty for employers and investors.

Although a range of commentators warned the gloom could see the economy stall as investors decided to sit on their hands, the economy has, at worst, cooled. Official figures suggest that after a weak few months leading up to the end of September, the economy was solid in the final months of the year. Business confidence is still low, but has come off extreme lows, and business confidence is almost always lower when Labour is in power, irrespective of real economic data.

But Robertson is aware that while he can continue to travel the country selling the coalition’s plans for a resilient and sustainable economy, New Zealand is ultimately driven by fickle winds from overseas. Those factors are looking increasingly worrying on a number of fronts.

There are increasing concerns about the strength of the Chinese economy, even before the impact of the trade war with the United States begins to bite. The exact state of relations between Wellington and Beijing is difficult to assess, but some trade experts are on edge, looking for signs of a retaliation over moves by the NZ Government Communications Security Bureau to stop Spark from using Huawei equipment in a major upgrade of its mobile network.

Britain is at risk of chaos if it cannot reach a deal over its exit from Europe, while the EU is taking steps that could curtail New Zealand exports to the trading bloc when Brexit occurs.

The moves to trim New Zealand’s export rights in Brussels are another case of a switch away from globalisation, a worrying trend for a trading nation and far from isolated.

Robertson, fresh from a trip to Davos, admitted the picture from counterparts across the world was clearly pointing to a slowdown. As strong as the fundamentals of the local economy are, with very low levels of government debt relative to other countries, low unemployment and solid growth, in the end as a trading nation, New Zealand cannot help but import the conditions which prevail overseas. ‘‘There is a heightened sense of risk from [global conditions], and for New Zealanders we’ve always got to be aware, we can do what we can do internally, but fundamentally these external trends are the things that will affect us,’’ he said.

Although Robertson talks up the underlying strength of New Zealand and moves to make the economy more resilient, in some respects he may be being overly optimistic.

New Zealand’s economy has already exhausted the easy sources of growth. Economists at Infometrics warned on February 1 that New Zealand was at the mercy of international economic trends more than at any time since 2011. ‘‘Net migration is slowing, the housing market has softened, and the tight labour market means that capacity pressures are inhibiting further growth.’’

For the time being at least, the economy is expected to expand at a respectable rate and, while unemployment may move up marginally, more jobs are still being added.

Robertson acknowledges a slowdown is happening overseas. While he is not yet at the point where the Government will pull levers to support job creation, he acknowledges that Labour’s budget responsibility rules always included room to change debt targets if the economy needed it. ‘‘We’re not at that place . . . but there is a slowdown happening.’’

As a starting point, low unemployment and Government debt is a positive one. Taking extra steps to support a slowing economy may indeed win much favour from the coalition’s traditional supporters, some of whom have been calling for more public spending for some time. But simply dealing with the pressures could represent a test of the Government which it has not faced yet.

Other areas of managing a Government have already been made to look like hard work, from coalition relations to flagship policy programmes such as KiwiBuild.

Add economic troubles to the existing complications and 2019 could conceivably make 2018 look easy.

‘‘We can do what we can do internally, but fundamentally these external trends are the things that will affect us.’’