Donald Trump and Xi Jinping - how they play their cards will affect the global economy. Illustration / Rod Emmerson
Donald Trump and Xi Jinping - how they play their cards will affect the global economy. Illustration / Rod Emmerson
COMMENT:
The trade war holds serious risks for New Zealand all right.
It could cost the global economy $900 billion a year by 2021, according to research produced by Bloomberg economists last week.
That figure is a worst-case scenario based on an escalation of tariffs to levels Donald Trump hasthreatened, and a related hit to global stock markets.
But for now at least, the headline grabbing drama of the trade war also provides a convenient excuse as the Government tries to spin its way through a turn in the domestic economic cycle.
When the Government acknowledges the slowing of New Zealand GDP growth, it is to global risk it prefers to point.
In fact in her pre-Budget speech to Business NZ, Prime Minister Jacinda Ardern was happy to throw European uncertainty and the UK's Brexit turmoil into the mix.
But in fact, New Zealand currently appears to be a net beneficiary of global economic events.
Export prices for New Zealand commodities have remained very strong.
In March, New Zealand exports rose $899 million (19 per cent) to reach $5.7 billion - a new record for any month ever.
Annual exports from New Zealand to China reached a record $15 billion in April this year. Photo / Getty Images
In the year to April 2019, annual goods exports to China increased $2.7 billion (22 per cent) from the April 2018 year to reach $15 billion for the first time ever.
That's due to rising demand for logs, meat and dairy.
Meanwhile, the trade war has rattled Chinese stock markets and caused some wild swings on Wall Street – but New Zealand's NZX has been viewed as something of a global safe haven for investors.
Now, with the Reserve Bank cutting rates the Kiwi dollar has fallen, providing further fair economic winds for exporters.
The Bloomberg economists who paint a grim picture for total global trade have broken down the damage down by country and industry sector.
It should come as little surprise that they see New Zealand as one of the least affected economies.
This upside of a trade war hasn't been unexpected.
Trade specialists such as NZ International Business Forum's Stephen Jacobi predicted as much when the stand-off first started to get serious last year.
Specifically, with tariffs going on US food exports to China it makes New Zealand food commodities more competitive and pushes up demand.
The impact has been complex and is far from direct.
A major swine flu outbreak in China has also put pressure on pork supplies and underpinned strong pricing for alternative meats - such as our beef.
Long term, the trade war is still ominous for New Zealand. There are risks to small trading nations around the breakdown of orderly trade rules.
And ultimately the economic impact on China might start to tell.
But for now the Chinese Government has the firepower to spend and stimulate its way through the stoush.
It is also becoming apparent that this trade stand-off is more of a tech war than a straight scrap about commodities.
At stake is China's ability to develop its economy and move to the higher value economic growth that would really challenge US supremacy.
That's epic, history-making stuff.
Some have called it a new Cold War. That will create diplomatic challenges for New Zealand but economically we are not caught directly in the firing line.
If we are looking for reasons why New Zealand's GDP growth is slowing, we should look closer to home.
Economists are largely agreed that we are headed in to the doldrums this winter.
Forecasts are for GDP growth to dip to between 2 and 2.5 per cent in the next few months before bouncing back through 2020.
That isn't so bad really.
The Government has belatedly acknowledged this, as both Treasury and the Reserve Bank have revised forecasts down.
So why not acknowledge why it is really happening?
The housing market is headed into a cyclical slump.
Business is not happy and not investing.
This has all the makings of a classic kiwi economic cycle.
It feels like Government is sick of hearing about business confidence surveys.
But whether you believe the surveys are a reasonable reflection of economically unhelpful policies or just political posturing, it doesn't alter the fact that the sentiment is starting to bite.
The latest ANZ Business Outlook Survey actually showed a small bounce in optimism after the Capital Gains Tax was taken off the table.
The lift was strongest in sectors such as manufacturing and retail.
The gloomiest sector right now is residential construction.
A house building boom is in full swing but the industry seems squeezed by capacity constraints - rising costs and staff shortages - and falling prices in Auckland.
It should surprise no one that New Zealand's short-term economic cycles are closely linked to the housing market.
There's risk that we see the slower market flow through to consumer confidence next, as happened in Australia.
The good news is that we are not headed for recession - yet.
If this is a cyclical low then history suggests it is one of the strongest we've had.
And if New Zealand is lucky then we'll see export strength leading us out the other side - ideally before the impact of a full scale trade war hits in 2021.
