The best forecasters of Australia’s economy are… New Zealanders

New Zealand expects to see growth in tourism, IT services and agriculture that will allow its economic fortunes to diversify away from China

When it comes to predicting the fortunes of the Australian economy, don’t ask a highly-trained economist, ask one of our neighbours.

New Zealand’s Deputy Prime Minister and Finance Minister Bill English says the net movement of his countrymen and women across the ditch has proved a great indicator of our relative economic fortunes.

“New Zealanders looking for opportunity have a better grip of this economy than Australian economists,” he told Citi’s annual investment conference in Sydney on Thursday

Forget asking an Australian economist about what the future holds, says New Zealand Deputy Prime Minister Bill English.

New Zealand is experiencing record high net migration and population growth, largely the result of New Zealanders choosing not to seek work in Australia.

“New Zealanders looking for work opportunities have a more consistently negative view of those opportunities than they have in a generation.”

“We’ve just had our sixth month of net inflows from Australia and that’s never happened before. The job of the deputy prime minister is to greet each one of them at the airport. It used to be minus 30,000 and now it’s plus 300.”

That’s good news for New Zealand. “It’s pretty important. Growth is people times productivity,” Mr English says.

But the slowdown in migration is also creating potential issues for Australia that has previously benefited from the growth boost that the flow of migrants has provided to the economy. The Reserve Bank of Australia recently lowered its population growth forecasts as a result of less net migration from New Zealand. This would reduce “growth in demand for goods and services, as well as the economy’s capacity to supply those goods and services,” the RBA said.

Changing economic fortunes

While both Australia and New Zealand have been exposed to China, their fortunes have been tied to different facets of its growth. Australia’s economy is more tied to Chinese investment which consumes iron ore and coal while New Zealand, a large exporter of milk products, is more dependent on the consumer.

But Mr English says that while overall consumption in China is rising, as its population ages, there will be a slowdown in food, wine and milk demand.

Markets are fretting about China’s ability to handle a complex economic transition away from investment-led growth towards consumption but that’s forcing economies like Australia and New Zealand to also adapt.

New Zealand expects to see growth in tourism, IT services and agriculture that will allow its economic fortunes to diversify away from China.

Mr English said some parts of the New Zealand economy stood to make huge gains from the Trans-Pacific Partnership trade deal citing an example of apple growers that had increased plantations on the back of the deal.

“American apples are crap. With no tariff we are going to outsell those guys easily.”

Mr English’s National party has held power since 2008 and remains popular among voters. While he said he’d never give Australians advice and was never asked, he did offer some thoughts on Australia’s political instability.

The key difference were the defining events of 2009 – the Christchurch earthquake and the recession – which led to a more pragmatic public mood, while in Australia it’s been “hard to persuade people there’s a problem.”

“The other thing is politics is just much more feral. Most of you are nice people but the politicians and journalists aren’t. We’d last about a day and a half.”

Mr English declined to discuss this weekend’s Rugby World Cup semi-finals because they were “far too serious an issue”.

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