Cullen says NZ in difficult point of economic cycle

By NZPA

Thursday 13th March 2003

Finance Minister Michael Cullen has some sympathy for exporting manufacturers hit by the high New Zealand dollar, but says it is a reflection of the strength of the New Zealand economy.

Dr Cullen was in Palmerston North yesterday as part of a travelling roadshow of government ministers.

"Undoubtedly the rapid rise in the New Zealand dollar is going to impact on the tradeable sector (but) some of those things are well outside our control," he said.

"They were due to the fall of the US dollar, which in many respects has been long overdue, and it's hard to see the US dollar bouncing back, given that the US Government is moving into deficit again."

Dr Cullen said New Zealand was in an unfortunate part of an economic cycle which had seen very high growth, a strong labour market and the continuation of a fairly tight monetary policy by the Reserve Bank.

"But I've no doubt that that will change at some turning point in the future."

Trying to predict when the turning point would occur was the hard part.

Because of its relatively high interest rates compared with other Western countries, New Zealand had room for "a fairly aggressive" monetary policy review, he said.

While some slowdown of the economy was expected over the next year, Dr Cullen said he was confident the pick-up would be stronger than some economists were predicting.

He said the Reserve Bank had signalled it was maintaining a watching brief on interest rates.

"They certainly don't anticipate putting interest rates up and the bias is towards an easing."

Dr Cullen said employment levels were unlikely to fall in the next year or so, but they were not expected to rise dramatically either.

"We will see some change in the Government's operating position but we are still anticipating some strong operating surpluses over the next couple of years.

"It's just a normal economic cycle and we're not at this stage looking at a recession."

However, Dr Cullen said the international situation was one of "huge uncertainty" and that New Zealanders should not fool themselves that it would not affect them.

The uncertainty over the US economy and its speed of recovery after the war with Iraq remained a key factor.

But Dr Cullen said there was an underlying confidence in the business community about the next five or 10 years.

"I remain optimistic, but cautiously so, as any finance minister should do. If you're over-optimistic and you let that carry you away, you start spending money before you've made it, and that's not a good idea."

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