jason-bellini

By Tracy Withers and Jason Bellini Nov. 13 (Bloomberg) — New Zealand’s recovery from recession will be slow because consumers are reluctant to spend and manufacturers are battling to cope as the soaring currency cuts their competitiveness, Finance Minister Bill English said. “We’re on the road to recovery but it’s going to be fairly bumpy,” English said in an interview in Singapore, where he is attending meetings of the Asia-Pacific Economic Cooperation forum. Consumers are confident “but they’re not yet backing that confidence with more spending or more investment,” he said. Slow growth in consumer spending and manufacturing adds to signs New Zealand’s economy won’t accelerate rapidly. The currency has jumped 26 percent this year, heading for a record annual gain. English said growth probably won’t pick up until 2010 after gross domestic product increased 0.1 percent in the three months through June, the first expansion in five quarters. “We didn’t believe it was recovering really quickly anyway,” he said. “It was only in a very technical sense we stopped contracting” in the second quarter. Retail sales , excluding inflation, rose 0.1 percent in the third quarter, according to a government report yesterday. A second report showed manufacturing , which ended 17 months of contraction in September, expanded at a slower pace in October. “Consumers are still making up their mind just how to deal with their overhanging debt,” said English. “They’re not sure where the housing market is going, they still face considerable job insecurity because unemployment is going to keep rising and some of the international commentary is more mixed.” Unemployment New Zealand’s jobless rate rose to a nine-year high of 6.5 percent in the third quarter and the government projects it will increase toward 7 percent in the first half of next year. The nation’s currency has surged 24 percent against the U.S. dollar during the past six months, the best-performing major currency tracked by Bloomberg. The gains have curbed exports and tourism, which make up 40 percent of the economy. “At this stage of the recession, we would normally have a currency low against the U.S. dollar and in the past that’s been one of the things that’s helped us lift out of the recession,” English said. “New Zealand’s got a challenge.” English and Reserve Bank Governor Alan Bollard have said the New Zealand dollar’s gains reflect weakness in the U.S. currency, which has slid against counterparts from the yen to the euro this year as the Federal Reserve keeps interest rates at a record low and the economy remains sluggish. “We’ve all got an interest in where U.S. policy goes because at the moment the dollar looks like it is going to continue to depreciate,” said English. “We have to think through the effects of having a high currency as well as relatively high interest rates which makes us an attractive risk investment for people.” Benchmark Rates New Zealand’s benchmark rate is 2.5 percent compared with the Fed target of 0.25 percent and Japan’s 0.1 percent. The nation’s house prices increased 1.3 percent in October from September, a report showed today. English said New Zealand is introducing reforms to make its companies more competitive even with a high exchange rate, and is taking advantage of free trade agreements with nations including China to counter the disadvantage. Exports to China have increased 25 percent the past year, English said. “We are surprised with what gains we are making,” he said. “The evidence is that despite the currency issue we’ve been able to grab the opportunity presented by the free trade agreement and it’s good news for us in the long term.” To contact the reporters on this story: Tracy Withers in Wellington at twithers@bloomberg.net ; Jason Bellini in Singapore at jbellini@bloomberg.net

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English Says Currency, Reluctant Consumers Slowing New Zealand’s Recovery