NZ well placed for battle ahead, says Key

New Zealand is in a better position to weather the global economic storm than many countries, Prime Minister John Key says.

He told a Council of Trade Unions conference on productivity yesterday the country was inevitably in for a rough period ahead, given its links with the wider world.

But he cited the conservatism of its banks, timely monetary and fiscal stimulus, the composition of its exports and its trading partners, and its general adaptability as grounds for believing it would emerge from the recession in better shape than many.

"The result of [the banks'] conservative approach is that we simply haven't seen the widespread collapse of financial institutions as in the United States, Europe and elsewhere," he said.

"In many parts of the world, credit for individuals and firms has dried up, sucking the life out of the economy. In New Zealand, by contrast, it has continued to grow."

Compared with the US and Britain much more of the central bank's official cash rate cuts had flowed through to borrowers.

"Economists predict that if interest rates hold at current levels, the cost to households of paying off their mortgages will drop by about $4 billion. If interest rates continue to fall that figure gets even bigger."

Meanwhile, the fiscal stimulus was among the biggest in the world and would get more bang for the buck than many overseas.

"That's because our stimulus is going into the productive parts of the economy through tax cuts to workers, on more infrastructure spending, rather than into the seemingly bottomless pit of financial bailouts."

The Reserve Bank estimates that New Zealand's trading partners' economies will shrink collectively 2 per cent this year.

But Key said Australia and some parts of Asia were not only coping better now but were seen as capable of recovering better in the future. "If the Asian region is the forerunner in the race to economic recovery, New Zealand is well placed to ride the wave."

The high proportion of agricultural commodities in the country's exports was another positive factor. "Even in a downturn people have to eat, but they don't need to buy luxury cars or top-of-the-line electronics," Key said.

And the exchange rate buffer was, in some cases, more than off-setting lower world prices, resulting in high incomes for sheepmeat and venison producers and some niche manufactures.

"When you look at events in the rest of the world you see a draining of the faith institutions and people have in each other," Key said.

"There's a sense their bigger homes, financial institutions [and] economic growth have all been built on a house of cards. I don't feel that here."