Exchange rate costs exporters $10.4 billion in 3.5 years

An overvalued exchange rate has cost exporters $10.4 billion over the past three and a half years. The New Zealand Manufacturers and Exporters Association (NZMEA) are calling for action on the exchange rate to prevent further losses.

In February 2009 the NZ Dollar bottomed out at 52.3 on the Trade Weighted Index (TWI), but since then currency manipulation overseas and inaction in New Zealand have seen the NZ Dollar TWI rise to 72.9 in August. For every one percent the currency rises it costs New Zealand exporters approximately $200 million on an annual basis. Between February 2009 and August this year the NZ Dollar rose by 20.6 percent, and it has averaged 14.8 percent above the February level over the last three and a half years.

NZMEA Chief Executive John Walley says, “It is no wonder that we are seeing job losses in coal and aluminium with a statistic like this. To put this in perspective New Zealand’s total annual merchandise exports are around $45 billion, so this is a hugely significant number compared to the margin on those sales.”

“Claims that nothing can be done to manage the exchange rate impact are only true in the context of our chosen macroeconomic framework - there are alternatives. Witness the international evidence from countries such as Switzerland, the United Kingdom and the United States, that efforts to control exchange rates can and do work.”

“The policy contrast between New Zealand and those countries making different choices is the primary reason behind our overvalued exchange rate as Reserve Bank Governor Alan Bollard’s comments attest to. Measures such as reducing Government debt will help somewhat but more deep-seated action must be taken.”

“Overhauling our economic framework with a focus on a balanced current account is long overdue. We must use whatever means necessary. Strategies used around the world have demonstrated there is no lack of means, what is missing here is the will.”

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