High dollar – who cares?
This week the New Zealand dollar reached post float highs on the TWI due to strong appreciations against both the Yen and US Dollar. These trends are very threatening for exporters say the New Zealand Manufacturers and Exporters Association (NZMEA). NZMEA Chief Executive John Walley says, “Well, the dollar is at yet another high, post float high on the TWI and close on the US$. Does it matter? Is it good? Is it bad? Inevitable questions; the knee jerk answer depends on where you stand. “Where the currency is at a particular point in time has a headline impact but the deep psychology is based on trend and impact over time. If you are an exporter selling largely in US$, a 1% change in the currency has an impact of maybe 10% on profit. “If the impacts are adverse, imagine what that does to business viability, employment and the readiness of business owners to invest. At a first cut approximation on $60b worth of annual exports a 7% change in currency (80 to 86 US$) is $4.2b or 84,000 jobs at $50k.” “If you work in the internal economy and consume why worry, imported stuff and holidays offshore are cheap. The problem is sustainability; an economy overly biased to consumption will hit the wall at some point. The wall for New Zealand is balance of payments; we consume more than we can pay for and the difference is covered by ever increasing offshore debt.” “It is pretty well agreed that our economy has a small set of high level problems, a structural current account deficit, poor productivity, low productive investment, and poor savings. We know the problems but there is no coherent narrative, let alone the policy to deal with them. “These problems stem from the deep bias towards consumption […]