Trump's trade war: 'Not a lot we can do', economist says

The global economy's headed for its slowest growth in nearly a decade, analysts say.

It's largely the fault of Donald Trump's trade war with China, Infometrics' latest forecast says, and there's little we can do about it.

"China, New Zealand's largest export market and the major engine of the global economy over the last decade, is growing at its slowest rate in 30 years," Infometrics said on Friday. "All these factors mean that next year the world economy could record its slowest growth since 2012."

That's bad news for New Zealand, chief forecaster Gareth Kiernan says, because the Middle Kingdom's now the destination for a quarter of our exports. 

"There's not a lot we can do about Donald Trump and the trade war that's going on there," he told The AM Show on Friday.

But the timing could hardly be worse, with New Zealand also suffering a "potent cocktail" of "slowing population growth, poor labour productivity, employment growth to a stage where it looks like construction activity - which has been quite a considerable driver of the economy over the last few years - is getting close to peaking". 

"Businesses are cautious about employing, cautious about investing, and that is compounding the slowdown that we've already been seeing in the domestic economy over the last 18 months." 

Gareth Kiernan.
Gareth Kiernan. Photo credit: The AM Show

Growth has slowed, in the recent couple of years, but some of the blame has been put on positive things, like the falling unemployment rate. 

"Finding skilled labour is hellishly hard for businesses, so we just can't grow as fast," economist Cameron Bagrie told The AM Show in September

Kiernan said the recent 2 percent growth in GDP is "not terrible", but the Government needs to up its spending - particularly in the wake of the recent surprise surplus and the looming election - to get things moving again.

"There's nothing worse for an incumbent Government than an economy that's slowing and everyone feels a bit depressed about how things are. The easiest thing would be some sort of temporary tax rebate or even tax cuts, given that we've had a fiscal creep pushing everyone up into higher tax brackets for 10 years now."

He was pessimistic about that happening though, saying the coalition has been "terrible" at turning its spending plans into reality.

"There are big ideas, grand plans the Government's had, but in terms of turning that into reality and getting the money out the door? Not a great deal of signs they've been effective... I'm not holding my breath for any great impact from the Government over the next 12 months."

Elsewhere, Infometrics predicts house price inflation will pick up again by 2021, with the Reserve Bank loosening loan-to-value ratio rules and lowering the official cash rate; but expects boom will be short-lived, as construction picks up and the housing shortage eased. 

"Any rebound would be temporary, and prices are likely to come under renewed downward pressure as high levels of residential construction shrink the housing undersupply."

As for the recent boost in the number of people receiving the unemployment benefit despite falling unemployment rates, Kiernan said it was a result of the Government's relaxing of eligibility rules. 

"Unsurprisingly there's more people that are eligible to receive it," even if there aren't more people actually unemployed.