New Zealand is likely to dip into recession sometime in the next 12 months largely thanks to Donald Trump, a prominent economist says.
The US President's "order" to for American businesses to "immediately start looking for an alternative to China" spooked the markets on Friday, the Dow Jones - which tracks the US economy - down 2.4 percent.
Trump also took aim at chair of the Federal Reserve - the US equivalent of our Reserve Bank - asking if he was a "bigger enemy" to the country than the President of China.
The trade war between the world's two biggest economies also escalated over the weekend, and economist Cameron Bagrie says New Zealand will struggle to avoid getting caught up in the consequences of the "pretty ugly" fight.
"He's firing off tweets telling American businesses to stop doing business with China. He had a bit of a potshot at the US Federal Reserve chairman [Jerome] Powell. These are not normal times. There's a lot of concern out there at the moment in regards to where the globe is going to head."
And there's little our Government can do, he says, with New Zealand "a two-bit player at the international roulette table" when it comes to the global economy.
"When the global economy starts to go down, we're going to start to feel the cost of this."
The usual response from the Reserve Bank in this situation would be to lower interest rates, helping the export sector. Bagrie's not convinced that'll be enough this time around.
"Is cutting the official cash rate really the big bazooka, the answer we need here? The answer is no. It'll help around the edges, stop the currency going up... but changing the price of money - making money cheaper - is not the solution here. What we're seeing is a wholesale loss of business confidence as we start to see this tit-for-tat in regards to trade wars, Brexit is not helping."
A month ago Bagrie warned if GDP growth - currently at 2.5 percent - dropped below 2 percent, unemployment would rise and make the 2020 election "interesting". Last week - prior to Trump's latest "tantrum" - he predicted growth would bottom out, but stay positive, for up to 18 months before rising again.
Newshub.
