Debt crises and New Zealand

Increasing concern around the size of sovereign debt in Europe, combined with surprisingly weak US economic data has led to a sudden sharp drop in equities since in recent weeks. These declines have intensified recently, with the S&P 500 now down 13% since July 22. The key question this raises is: "if there is another financial crisis how will this impact on New Zealand"?

Debt concerns intensify in Europe, US

There has been a fresh proliferation ofnegative sentiment on international markets in recent weeks.  The Euro-zone hasbeen slipping further into crisis while concerns over the US debt ceiling and a weak US economy are coming to a head.  Expectations of US GDP-growth in thenear-term are beginning to drift downwards again with the labour market anddomestic demand expected to remain sluggish for some time.

Can we really count on China?

As China’s economy continues to hum along, a major economictransition is taking place.  China is starting to move away from export-intensivegrowth towards greater domestic demand.  At the same time, China’s cheap labouradvantage is giving way to more focus on value-added.  Questions have beenraised about China’s ability to keep growing amid a sluggish global recoveryand unwinding government stimulus.  But a moderate recovery in exports and asteady rise in domestic demand will be enough for China to maintain growth ofaround 8-9%pa over at least the next five years.

Is another downturn on the cards?

Share market performance was pretty crappy during Junethanks to growing fears about a double-dip and worries over government balancesheets and spending.  Is another downturn on the cards?  That’s certainly whatfalling government bond rates seem to be suggesting, and it is a potentialscenario we pay attention to.  However, we think we are more likely to see aslowing in growth rather than an outright collapse – a view we lay out in moredetail in this article.

Draws are not good enough if we want to improve our world ranking

Two months ago I wrote about an international study on the importance of management to business and economic performance (Dominion Post, 17 April 2010). I concluded by saying that it would be nice to see how the management of New Zealand firms compared with those in other countries. What I did not know was that the Ministry of Economic Development had already commissioned the same research team to replicate the research in New Zealand and that they were just about to release their report: Management Matters in New Zealand – How does manufacturing measure up?

Alphabet soup

Growth!  It’s being a long time between drinks for the USeconomy, but over the September quarter it expanded at a 2.8%pa annualisedrate.  The world’s major economies all look set to expand over the fourthquarter, ending the recession.  The first wave of euphoria from this news isalready reflected in the 63% market rally since the low in March.