KEY POINTS:
The New Zealand financial markets may see a brief "relief rally" this morning after the National Party's convincing sweep into power, but the global financial crisis is still the only story in town, say commentators.
"There's so much happening internationally that our own election's a little bit of a sideshow," said fund manager Paul Glass, of Brook Asset Management. "I'd be very surprised if you saw any kind of bounce on the back of it."
Sharebroker Grant Williamson, of Hamilton Hindin Greene, said Saturday's win was likely to bolster investor and business confidence with a National Government being seen as more business friendly.
"But really a change in Government doesn't change what's happening in the economy at the moment."
Sue Trinh, senior currency strategist at RBC Capital Markets, said the same was true for the dollar.
"Politics have become less relevant than they may have been in the past in terms of the economy or the markets. The New Zealand dollar will underperform across the board. Not only have the domestic fundamentals underlying the currency evaporated, but our bearish view is as much a global story as it is domestic."
All up, the fledgling Key Administration is looking out over an unappealing economic scene.
In his first press conference as Prime Minister-elect yesterday, John Key admitted the Treasury Secretary had warned him the country's books had "deteriorated" since the Pre-Election Fiscal and Economic Update (Prefu) last month.
The new Government will get its first update on the nation's financial position in a midweek briefing from Treasury and the Reserve Bank.
The worst of the global credit crisis hit after Prefu was prepared, and former National leader and Reserve Bank governor Don Brash said he had long held the view that the numbers were going to be bad. Key did not have the option of doing nothing.
There was some expectation that things would have to be done to respond to the financial crisis, and possibly this side of Christmas.
"This is not the time to drastically cut the budget deficit. I think running a budget deficit is an entirely appropriate thing to do in the current circumstances."
Specific commitments to stimulating the economy, such as tax cuts and support for people who lose their jobs, had already been made. But measures needed to be put in place so that, as the economy recovered, the books could be balanced.
"It is quite imprudent to project large deficits into the indefinite future." Brash called for investment in economy-boosting measures such as infrastructure projects, rather than "low-quality spending" such as free student loans.
Jean-Pierre de Raad, chief executive of the New Zealand Institute of Economic Research, backed the call but questioned National's planned $1.5 billion expansion of broadband "which will be great for people who like internet gaming and downloading movies, but I'm not quite sure precisely how that will translate into economic growth".
De Raad said there was still more scope for boosting the economy with lower interest rates, and if things got really bad with something like a one-off tax cut.
"The question now is whether more needs to be done and that really depends on how the global situation unfolds, and that's changing day to day." He said a short-term increase in Government debt was not a negative.
Brook Asset Management's Glass wanted to see a friendlier regulatory environment for private investment in infrastructure. There had been "lunatic" decisions from the Commerce Commission on acceptable rates of return in the power sector.
"There's a feeling amongst business that under the previous regime you'd almost have been mad to invest in infrastructure assets in New Zealand, because you'll sustain years of losses, and once you get to a position of turning a profit they will regulate that profit away from you."
He praised the Labour Government for improving the nation's savings through the New Zealand Superannuation Fund and KiwiSaver.
FROM THE SIDELINES
There's so much happening internationally that our own election's a little bit of a sideshow.
- Paul Glass
This is not the time to drastically cut the budget deficit. I think running a budget deficit is an entirely appropriate thing to do in the current circumstances.
- Don Brash
