Paekakariki Hill Road – where your columnist resides – had been closed by the ravages of heavy rain for the second time in week as these new-year words were written. State highway one north of Wellington had been closed again too. It was tempting to complain of the summer from hell, except the weather blowing our way from down there surely could not have been chilled so rapidly and brought icebergs to our waters.
It could have been worse. While New Zealanders griped about the wipeout of their Christmas holidays, whole communities around the Indian Ocean had been wiped out by tsunami. United Nations secretary-general Kofi Annan described the devastation as the worst he has ever seen. Most economists nevertheless reckoned the catastrophe will actually boost growth in the region in the long run.
The World Bank said early in January it would stick to its forecast of 6.5 percent growth rate for the Indian economy despite the tsunami tragedy. “We have not estimated the impact of tsunami on the Indian economy, but we can say that it will not significantly change our outlook for fiscal ’05,” the World Bank’s country director for India, Michael Carter, told reporters.
The tsunami was human tragedy more than an economic catastrophe, he said.
Indonesia, which reported nearly 100,000 deaths, similarly was expected to stay on course to meet the annual economic growth forecast in 2005.
The world’s wealthiest countries have frozen or forgiven debt payments of the tsunami-battered nations. This should enable governments in the affected countries to redirect payments towards rebuilding.
Central bankers meeting in Basel, Swizterland, early in January were worried. But not about the tsunami’s devastation. They were worried, rather, about getting the global economy on to smooth growth path in the face of huge American deficits and the threats these pose of further dollar slide.
Japan’s recovery was looking shaky, Britain was slowing and domestic demand had failed to revive in the euro zone. Heading into the new year, this left the debt-burdened United States and its hunger for imports to be the biggest driver of the world economy along with emerging Asia. The American current account deficit could only worsen.
“The big question in 2005 is what is going to be done about the United States spending more than it produces?” said John Llewellyn, global economist for Lehman Brothers in London. He and other economists know lopsided global growth makes the world vulnerable to further plunge in the US dollar, which has slumped 25 percent in trade-weighted terms since early 2003.
World economic growth was projected to expand five percent last year, the fastest pace in three decades, according to the International Monetary Fund forecast in its World Economic Outlook in September. week or so before the tsunami, IMF chief economist Raghuram Rajan told Australian journalists the world economy may expand more than four percent this year. Any decline in oil prices (another rogue element for forecasters) would underpin growth, he said.
The outlook is not quite so cheery for this country, according to the NZIER Consensus Forecasts, an average of New Zealand economic forecasts compiled from survey of financial and economic agencies. The Consensus Forecasts in December showed 2004/05 growth forecasts revised upward from 3.8 percent in September to 4.5 percent. GDP growth in 2005/06 is forecast to fall to 2.3 percent, however, reflecting slower growth in domestic demand driven by 10.3 percent decline in house building.
But hey. We shouldn’t be perturbed by portents or forecasts.
As business writer Terry Hall recalled in an end-of-year piece in the Dominion Post, agricultural forecasters were confounded by events last year. Back in January 2004 most picked it would be reasonable year but no one guessed New Zealand would enjoy some of the highest commodity prices in decades, he noted.
While the real exchange rate was high all year, New Zealand’s terms of trade were at their highest in 30 years and our trading partners’ GDP growth was the strongest in 10 years. Strong commodity prices and the booming global demand insulated exporters’ incomes against the profit-crimping effect of the currency’s rise.
The weather defied the forecasters, too. “This time last year no one could have predicted the North Island floods, or the hail storms and other catastrophes that hit orchards and lowered the quality and value of some crops such as kiwifruit,” Hall wrote. “Forecasters are now nervously watching for signs of drought in parts of the South Island.”
Forget about the drought. At time of writing, Otago farmers – like your columnist – were troubled by floods.
Bob Edlin is regular contributor to Management.
