By Mark Jennings*
Prime Minster John Key has warned that the biggest threat to the New Zealand’s economic growth is the possibility that interest rates will rise unexpectedly.
Speaking at a Westpac event in Auckland on Friday, he said the economy, which was growing at 3.6% per annum (the highest in the OECD ), was being driven by low interest rates.
Although New Zealand still had relatively high interest rates compared to the rest of the world, they were now at their lowest point in 70 years, he said.
Key said homeowners who had borrowed NZ$300,000 were now paying NZ$16,000 a year less in interest than they did when he took office.
This extra money in people’s pockets, along with the construction boom, tourism and immigration was driving the economy.
According to Key, rising interest rates are historically the main reason for recessions in New Zealand and at some point they would rise again and impact growth.
'Global problems still a concern'
Global economic problems continued to concern him.
“The world is not going to come right in a hurry," he said.
Key said some of the biggest economies were drowning in debt "and we might get hit by an unforeseen increase in inflation."
The other major threat was the worsening situation in the Middle East.
Key was "pretty negative" about the situation in Syria. He believed Russian President Putin was determined to show that he was stronger than Obama.
The war had led to pressures in Turkey and a flood of refugees which in turn was leading to a rise in “the far right” in European politics. Key described this as a worrying trend.
Westpac Group CEO Brian Hartzer agreed with Key’s assessment of global economic problems.
"We are still using the same global settings as seven years ago and the world is not yet fixed," Hartzer said.
While he admitted playing to the audience, Hartzer praised Key and his Government.
"New Zealand is the envy of your cousins across the ditch. Your challenges are good problems to have and incredible credit to the Government," he said.
- Mark Jennings is the former group head of news for MediaWorks and now runs a media consultancy with former NZ Herald editor-in-chief Tim Murphy.