KEY POINTS:
National's finance spokesman Bill English says Finance Minister Michael Cullen faces the worst economic year of his tenure.
Mr English briefed National MPs on the economic outlook for election year.
"Regardless of the bad news that has been in the paper about the world equity markets, our economy is running very full. There is still significant inflation pressure and the labour market is getting tighter," Mr English said.
Mr English said it appeared the housing market could remain flat for some time and interest rates could stay high for a long period as well.
The wider New Zealand economy has some shelter from the jitters going through share markets due to concerns about bad debts in the financial sector, but it may not be entirely immune.
"The fortunes of our economy are tied more directly to commodity prices than they are to share prices. It is a matter of how those changes in the share market leak through to overseas economies and the commodity prices in those markets," Mr English said.
No matter what happened, Dr Cullen would feel the pressure at home.
"The problem for Dr Cullen is that despite the economy running at pretty near to full, consumers are feeling the pressure of inflation and interest rates," Mr English said.
Dr Cullen had recently issued a statement urging calm, but Mr English said that would not help New Zealanders.
"His comments were directed at reassuring about the state of the Government's books - New Zealanders see the state of the Government's books as being at their expense - so he's got growing assets, he's got rising income and they are facing flat asset values and eroding purchasing power via inflation."
Dr Cullen could potentially be facing a period of stagflation - high inflation and interest rates combined with low or no economic growth.
"It is possible - we are seeing high inflation chipping away at their purchasing power and no growth in their consumption or asset values."
This would come as a shock to many, as a whole generation of New Zealanders would be voting in 2008 that had never suffered an economic recession, apart from one short period in 1999 due to a severe drought and the Asian crisis.
"There has been pretty steady growth since 1992 and many people don't know or have forgotten that it can slow down," Mr English said.
"If you look back over the past six or seven years consumers have had a pretty good run. They have borrowed quite a bit but they have been spending because house prices have been going up.
"Their real incomes have not risen that much and that is where the weakness lies and now they face a period where they still have got the debt but their housing values are not going to go up and their purchasing power is going to suffer. People are going to be buckling down."
National was not hoping or banking on a recession, but Mr English said "the economy will be politically relevant because so many voters will be suffering the consequences of Labour's mismanagement of economic growth".
Dr Cullen should just "give up", Mr English said.
"He has had an unbelievable run of good fortune, he has had more money than any politician could hope for coming in to the coffers and they have squandered the opportunity, with the odd exception like KiwiSaver," Mr English said.
A National government in office now would not be reacting to the shocks on the share markets but would have ensured people were wealthier than they are now, Mr English said.
- NZPA
