FACTBOX-Five political risks to watch in New Zealand
WELLINGTON, Nov 3 (Reuters) - After facing the risk of a sovereign downgrade earlier this year, New Zealand's economic fortunes have improved.
Following is a summary of key New Zealand risks to watch: * PUBLIC DEBT AND POLICY CONSTRAINTS
New Zealand's budget this year was drawn up under the shadow of a possible S&P ratings downgrade. The risk of a sovereign downgrade that would hammer New Zealand asset prices constrained the ability of the government to implement all the expansionist measures it may have liked to tackle the global financial crisis. New Zealand's economic fortunes have improved and there is no imminent risk of a downgrade, but the country's debt level and the constraints it places on policy remain a key theme.
Key issues to watch:
-- National debt and budget deficit data. If New Zealand fails to meet its target deficits in coming years, it could again face the risk of a downgrade by sovereign ratings agencies.
* THE TROUBLESOME KIWI DOLLAR
Another constraint on government policy is the fact the Kiwi dollar has a life of its own, because it is widely used by global markets as a proxy play for risk appetite and global growth prospects. This means it faces significant volatility that has nothing to do with New Zealand's domestic economic fortunes.
Key issues to watch:
-- Policy response. Finance Minister Bill English and central bank governor Alan Bollard have said repeatedly that the currency is not reflecting fundamentals and is overvalued. But they have also conceded there is little they can do about it, given it is largely a reflection of a weak U.S. dollar.
* ECONOMIC TIES WITH AUSTRALIA
New Zealand is expected to continue moving towards a single market with Australia, through harmonisation of the regulatory environment and promoting easier trade, investment and travel measures. But there are political and economic difficulties in promoting the concept of a single currency.
Key issues to watch:
-- Next policy steps. Both countries are committed to a single market, so the main questions revolve around the timing and whether they go as far as creating a single currency.
* CLIMATE CHANGE
As an island nation, New Zealand is vulnerable to the impact of climate change. The government has pledged to bring carbon emissions to a target of 10-20 percent below 1990 levels by 2020.
Key issues to watch:
-- Legislation. What level of cost will the proposed changes to the emissions trading scheme impose on businesses?
-- Weather patterns, for any evidence that New Zealand is becoming more vulnerable to extreme weather.
* GOVERNMENT EFFECTIVENESS
The centre-right National Party leads a minority government with the support of three smaller parties. The three have pledged to support National on key matters of supply and confidence, ensuring its political survival, but much of the rest of National's political programme comes down to negotiation on specific policies. This leads at times to compromise and delays.
Key issues to watch:
-- The government is expected to last its three-year term but at times may struggle to push through pieces of policy, or be forced to make concessions which are unpopular with its support base in order to get laws passed. (Reporting by Gyles Beckford and Andrew Marshall)
Following is a summary of key New Zealand risks to watch: * PUBLIC DEBT AND POLICY CONSTRAINTS
New Zealand's budget this year was drawn up under the shadow of a possible S&P ratings downgrade. The risk of a sovereign downgrade that would hammer New Zealand asset prices constrained the ability of the government to implement all the expansionist measures it may have liked to tackle the global financial crisis. New Zealand's economic fortunes have improved and there is no imminent risk of a downgrade, but the country's debt level and the constraints it places on policy remain a key theme.
Key issues to watch:
-- National debt and budget deficit data. If New Zealand fails to meet its target deficits in coming years, it could again face the risk of a downgrade by sovereign ratings agencies.
* THE TROUBLESOME KIWI DOLLAR
Another constraint on government policy is the fact the Kiwi dollar has a life of its own, because it is widely used by global markets as a proxy play for risk appetite and global growth prospects. This means it faces significant volatility that has nothing to do with New Zealand's domestic economic fortunes.
Key issues to watch:
-- Policy response. Finance Minister Bill English and central bank governor Alan Bollard have said repeatedly that the currency is not reflecting fundamentals and is overvalued. But they have also conceded there is little they can do about it, given it is largely a reflection of a weak U.S. dollar.
* ECONOMIC TIES WITH AUSTRALIA
New Zealand is expected to continue moving towards a single market with Australia, through harmonisation of the regulatory environment and promoting easier trade, investment and travel measures. But there are political and economic difficulties in promoting the concept of a single currency.
Key issues to watch:
-- Next policy steps. Both countries are committed to a single market, so the main questions revolve around the timing and whether they go as far as creating a single currency.
* CLIMATE CHANGE
As an island nation, New Zealand is vulnerable to the impact of climate change. The government has pledged to bring carbon emissions to a target of 10-20 percent below 1990 levels by 2020.
Key issues to watch:
-- Legislation. What level of cost will the proposed changes to the emissions trading scheme impose on businesses?
-- Weather patterns, for any evidence that New Zealand is becoming more vulnerable to extreme weather.
* GOVERNMENT EFFECTIVENESS
The centre-right National Party leads a minority government with the support of three smaller parties. The three have pledged to support National on key matters of supply and confidence, ensuring its political survival, but much of the rest of National's political programme comes down to negotiation on specific policies. This leads at times to compromise and delays.
Key issues to watch:
-- The government is expected to last its three-year term but at times may struggle to push through pieces of policy, or be forced to make concessions which are unpopular with its support base in order to get laws passed. (Reporting by Gyles Beckford and Andrew Marshall)
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