Simpson Scott: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeSimpson Scott: Oral Questions — Questions to Ministers[Sitting date: 12 August 2015. Volume:707;Page:5695. Text is incorporated into the Bound Volume.]1.SCOTT SIMPSON (National—Coromandel) to the Minister of Finance: What reports has he received on recent developments in the international economy and how will these affect the New Zealand economy?Hon BILL ENGLISH (Minister of Finance): As a small open economy there are always events in a global economy that we need to pay attention to. There is a recent report for instance that says that the Government of Greece has struck an outline deal with creditors on the proposed terms of a bailout package. This would bring some more stability to the European Union a necessary but not sufficient condition for stronger growth in the EU which is a market for 12 percent of New Zealand’s goods and services exports. Other reports indicate a more sustained recovery in the United States and slightly stronger domestic activity in Australia and that the equity market in China has settled in the past 2 weeks although risks remain elevated. Overall the picture for New Zealand’s key trading partners is for growth of between 3.5 and 4 percent over the next 2 years and that is an environment in which well-placed New Zealand firms can continue to grow and thrive.Scott Simpson: What is Treasury’s latest assessment of international economic developments and what implications might these developments have for New Zealand?Hon BILL ENGLISH: Treasury reports that the data from our trading partners in July was broadly positive with employment growth in manufacturing services in the US the UK recovery continuing and both UK and US monetary policy now expected to tighten which is actually a positive sign for growth prospects in their economies. Australian employment grew by 2 percent in the year to June although unemployment also increased slightly. Overall Treasury concludes that risks arising from Greece and China have receded somewhat and that there has been an improvement in the outlook for our trading partners. That is positive for the New Zealand outlook.Scott Simpson: What factors are supporting the New Zealand economy as a whole in the wake of the decline in dairy prices?Hon BILL ENGLISH: I think fundamentally that it is the pressure that has been on New Zealand’s export industries through a period when the exchange rate was very high—up to 88c against the US dollar. Export businesses had to become much more efficient simply to survive and they did. Today the kiwi is buying closer to 65c a 25 percent reduction which is assisting those businesses to be more competitive at a time when they have certainly earned it. The ANZ’s measure of our commodity prices in New Zealand dollars is down 7.3 percent in the past year. This has all been driven mainly by dairy but it makes the point that even though dairy prices have fallen significantly the overall commodity price index has fallen only 7.3 percent. Of course alongside that interest rates and the exchange rate look like they are continuing to fall.Grant Robertson: In light of his answer to the question before last—that the risk from China’s slowdown has receded—how then does he explain reports from China that there has been not only an 8 percent year-on-year drop in exports but also an 8 percent year-on-year drop in imports and that people reporting on the Chinese economy are suggesting that the crisis is far from over?Hon BILL ENGLISH: What I was reporting to the member was Treasury’s latest assessment of those developments. Although I said that Treasury concludes that the risks from China have receded of course on any given day in such a large complex economy as China there is always evidence for the view that it is going to slow down considerably—whether you think it is the provincial debt levels or the overinvestment in property and infrastructure. Nevertheless Treasury’s view is that China’s outlook is reasonably positive.Grant Robertson: In light of that answer then does he prefer Treasury’s advice to that of Sharon Zollner from ANZ who said: “It is a sea of red across the entire commodity complex which is not telling us anything good about global growth and resource-hungry China in particular.”?Hon BILL ENGLISH: I think that you are referring to a comment by the ANZ. It is the ANZ’s commodity index that shows actually the fall in the last 12 months has been—Grant Robertson: A sea of red—that’s what she said.Hon BILL ENGLISH: A 7.6 percent decline in the New Zealand dollar value of New Zealand commodities is I might say with respect not a sea of red although I have noticed a tendency among bank economists recently to compete for making the most outrageously negative comment. But of course they have to go a long way to be more negative than the finance spokesman for the Opposition.Scott Simpson: What sectors are supporting growth in foreign earnings for the New Zealand economy?Hon BILL ENGLISH: The non-dairy sectors make up 80 percent of the value of our foreign exchange earnings in a typical year—80 percent. This includes information and communications technology international education services horticulture high-tech manufacturing and inbound tourism. They can all reasonably be expected to play an increasing role in propelling growth in the economy in the year ahead. The potential for further growth in inbound tourism for instance is significant. A Statistics New Zealand accommodation survey published this morning found that national guest nights were up for the 15th consecutive month and that 10 of 12 regional areas had more guest nights with the South Island’s guest nights up 3.8 percent and the North Island’s up 2.7 percent. I can understand why more people want to go to the South Island than the North Island.