With New Zealand’s net international debt hitting 98% of its annual production (GDP) in March there has been a lot of talk regarding the fact that we seem to have borrowed excessively relative to the rest of the world. As the global economic situation gradually makes it more difficult for a small country like New Zealand to bury ourselves in debt, it is important to look at why we could be borrowing so heavily.
As the New Zealand economy delves deeper into recession, there appears to be a growing disquiet that the government has yet to produce a comprehensive fiscal solution. National’s laissez faire approach is in stark contrast to the aggressive monetary and fiscal stimulus being embraced in the US; a stimulus that is ratcheted higher on an almost weekly basis.
Businesses are running scared. The firstmajor New Zealand economic news for 2009 has seen the NZIER’s measure ofbusiness confidence plummet to its lowest level since at least 1970. Confidence can be a nebulous beast, but measures of activity experienced in thelast three months have also fallen sharply. More specific questions also addsubstance to the pessimism. Profitability expectations are the worst since1982, and a wide range of other indicators from the survey are at their lowestsince the early 1990s recession.
Since May this year, the Baltic Dry Index has collapsed (falling by 93%) – a movement that may be of concern for a small trading nation like New Zealand. The Baltic Dry Index (BDI) is effectively an index of shipping costs for 26 of the main "dry commodity" shipping routes. As a result, movements in the index give us some idea about how the cost of international shipping is changing. However, over recent years the index has also been used as an indicator of the outlook for commodity prices. This interpretation of the index is something we discussed in detail back in March
There is now little doubt in anyone’s mind that the New Zealand economy is in for another bumpy ride over the coming year. Given this realisation the burning question is: How can government policy save the day?
Reports about the credit crunch, looming global recession and stock market volatility have dominated economic reports over the past few months. But for most New Zealanders the question will be what does it mean it for me? At its simplest: how safe is my job?
Most of us can recall what we were doing when major eventsoccurred like when the twin towers came down, when Princess Diana died orduring the stock market crash of 1987. The global financial crisis of 2007/08 isfast shaping up to be one of the defining periods in world history. But theenormity of what is happening on world markets can be hard for New Zealandersto comprehend. Twelve figure sums are being thrown around by governments and massivecompanies are going bankrupt. As we deal with our current economic challenges,the deteriorating world economy has New Zealanders wondering what else may bein store.
It’s official – New Zealand experienced its first recession in a decade over the first half of 2008. According tothe official statistics the quarterly level of economic activity is down 0.5%on its peak in December (adjusted for seasonal differences).
Real disposable incomes of Kiwi households have been rising on average for a considerable length of time even after taking into account increasing costs of food, fuel and mortgages. This was very clearly demonstrated by a colleague of mine – Chris Worthington – in this column some weeks back. But averages sometimes disguise differences across social strata. Have we all being been enjoying the fruits of growth?
New Zealand is an indebted nation that persistently runs current account deficits. This raises the questions, what is a current account deficit and should we be concerned about it?