In GDP terms, 2014 looks the best in seven years for this country and high among rich-countries. Half of that is Christchurch, which is assured (though temporary). Auckland house-building is set to rise.
Those factors mean that, short of a big shock, what happens offshore is less critical to the GDP number than usual. Nevertheless, a third of the economy is exports of goods and services, so the world is still significant. Out there the outlook is mixed.
China, our largest trading partner and fastest growing source of tourists, still has strong economic momentum, 7-7.5 per cent a year. But it also has growing pains — economic, social and political.
The new leadership is giving a bit more latitude to its financial sector, pushing state-owned enterprises to be more market-driven, cutting investment’s share of GDP growth and so lifting private consumption’s share and starting to temper debt-ridden, lower-level governments’ rampant land-grabs for revenue. Foreign firms have a bit more leeway.
But foreign firms also are targeted for penalties and restrictions. The financial sector’s transition is fraught: there were short-lived, nail-biting credit crunches in June and December. Manufacturing slowed to a crawl: rich-country export markets were in low gear and wage costs climbed.
Glaring inequalities in income, wealth and residential status, bubble-like big-city house prices, dangerous air pollution and serious water scarcities need fixing if the ruling technocrats are to go on getting the public buy-in needed for acquiescence in their authoritarian regime.
The results of government polling (now extensive) push it to be more assertive abroad, hence tension with Japan over the Diayou/Senkaku islands, with the Philippines over South China sea claims and with the United States over naval vessels’ right of passage. A reprise of 1914’s catastrophic mistake can’t be ruled out, even if very unlikely.
The United States ended 2013 edging up in house prices, retail sales, manufacturing and jobs (if you leave out the December snow effect). Though the trajectory was lumpy and subject to reverses, the 2014 path looks modestly up.
That depends on the Federal Reserve managing its wind-down (“taper”) of its money-printing with little damage, on Congressional budget behaviour reflecting recent flickers of sense and on the Tea Party losing traction in November’s mid-term elections. Downside risks include a taper-driven financial market crunch, more budget standoffs and a Tea Party resurgence, played out to a grumpy, flat-waged public, some mix of which could generate turbulence in the world economy. Those risks, if realised, would increase the risk of a miscalculation with China.
Prospects have improved that the Eurozone will edge a little further out of its credit crunch and that its GDP will expand tepidly, with its worst-hit economies continuing to crawl out of the pits. High on Europe’s needs list is to clarify Germany’s role, among Germans and between Germans and the rest, particularly in how bank failures — which analysts say remain a real prospect — are to be dealt with.
Britain meanwhile is trying to “renegotiate” its European Union membership, ahead of a referendum on whether to stay in. Expect Britain to muddle through to a stay-in decision on the back of halfway-plausible, modest reforms of Brussels’ rules and bureaucracy, backed by Holland.
Japan took off down an expansionary path in 2013, with mixed results. The aim is to lift inflation to 2 per cent after two decades or flat or falling prices. But late in 2013 consumers logically slowed spending as prices rose. Prospects are mixed for 2014, which jeopardise Prime Minister Shinzo Abe’s mooted, and long overdue, economic reforms. Abe is also flexing nationalistic rhetoric. Don’t expect a brush with China but don’t rule one out.
Another risk zone is the Middle East, for itself and for the world. Syria and Iraq have gone tribal. Libya, Tunisia and Lebanon are fractious. Turkey is not the stabilising force it was. The oil states are no longer pictures of stability, which lower oil prices this year won’t help. But Egypt might temper military rule with a little political diversity and Iran may have begun a slow liberalisation.
The Trans-Pacific Partnership might get up. But Japan and intellectual property are problems and the United States Congress is wary. And if all does go to plan will China, excluded, still be nice to us? The more ambitious Trans-Atlantic Trade and Investment Partnership is marginally more likely than not to make progress but how much? The World Trade Organisation agreed some modest advances late last year but is otherwise moribund. The United Nations climate change talks are unlikely to get far enough this year to foreshadow a meaningful agreement on schedule at end-2015.
Add it up: more global ups than downs. But, even if the downs beat the ups, Christchurch will keep our show on the road. Hard reality is at bay here for 2014.