New Zealand Minister, Economists Slam U.S. Analyst for 'Alarmist' Article on NZ Economy Going to Recession

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By Reissa Su | April 22, 2014 2:41 PM EST

New Zealand economists have rejected the claims of an analyst writing for U.S. magazine, Forbes, that the country is headed for "a major fall."  Jesse Colombo wrote in a Forbes column that New Zealand's housing market was "overvalued" and an increase in interest rates could lead to recession.

REUTERS
A picture of Reserve Bank of New Zealand dollar notes. September 3, 2012.

The 28-year-old analyst suggested that along with Australia, Canada and other countries, New Zealand's economic bubble could burst. Mr Colombo said the bubble could pop and he expected it to happen globally. He believes the events leading to recession will not only happen in New Zealand.

However, economists in New Zealand were quick to defend the status of the country's economy and said Mr Colombo's assessment may be an overstatement. Economist Bernard Hickey said Mr Colombo was talking about things people have already mentioned before. Mr Hickey pointed out that the government and the Reserve Bank of New Zealand have been responding to the risks.

Shamubeel Equab, another economist, said Mr Colombo's comments were portraying a "doomsday" scenario. Mr Equab acknowledges the risks in New Zealand's economy due to Auckland's high housing prices, debt and the country's dependence on relatively few export markets. However, he believes that Mr Colombo's interpretation is "hugely overdone."

In an interview with One News, Mr Colombo said he did not mean to sound like an alarmist and he was "just the messenger." He blamed the central banks in countries facing economic risks for "inflating" the bubbles. Mr Colombo was only reporting the data he was seeing.

Economic Development Minister Steven Joyce said Mr Colombo may be "predicting bubbles" around the world. Mr Joyce warned that Mr Colombo may be seeing bubbles "everywhere he looks."

In his Forbes article, Mr Colombo has outlined 12 reasons why New Zealand's current economic boom is "about to pop with dramatic results."

New Zealand's economy has been previously likened to Ireland. In a Bloomberg report, SLJ Macro Partners Stephen Jen and colleague Faith Yimazn said it was only a matter of time before the New Zealand dollar will decline. Both analysts remarked that the reality is "quite different" despite the Kiwi dollar's strong performance as of late. The analysts told Bloomberg they were not convinced with the Kiwi despite New Zealand's growing economy, high-yielding currency and high terms of trade. They said New Zealand reminded them of European countries and emerging markets before the crisis hit them. According to Mr Jen and Mr Yimazn, New Zealand has a growth model based on debt and credit, current account deficits and low savings rates.

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(Photo: REUTERS / )
A picture of Reserve Bank of New Zealand dollar notes. September 3, 2012.
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