PM Says Rapid Rate Rise and Macro Risks Biggest Threats to New Zealand

John Key has signalled a rapid and unexpected rise in interest rates and “something big that happens internationally” as the biggest threats to the New Zealand economy.

“Almost every recession we’ve had is driven by real interest rates going up,” says Key.

“This is the big risk.”

New Zealand has been enjoying economic growth at 3.6 per cent of GDP – the highest grow rate in the OECD – on the back of a 70-year low in interest rates.

In a recent address to Westpac customers, Key traversed some rosy economic statistics.

But the prime minister was also keen to highlight potential risks which could drive a recession in New Zealand.

The first is rising interest rates.

Said Key: “Almost every recession we’ve had is driven by real interest rates going up. And that is very unlikely at the moment. We really are bucking the international trend. We are still at two per cent base rates. Inflation is running incredibly low. There is fundamentally no pressure on the Reserve Bank to raise rates.”

Traditionally drought has also contributed to recessionary risk in New Zealand, but Key discounts this as a current risk.

The third recessionary factor is “the risk that something big happens internationally.”

It’s this issue which is centre-stage with Key.

via NZ Herald

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza