NZ better placed than most: IMF
 Source: Dominion Post
24 March 2009
New Zealand’s economy is tipped by the International Monetary Fund to shrink by 2 per cent this year in the global crisis it has dubbed the Great Recession.
However, fund mission chief for Australia and New Zealand Ray Brooks told The Dominion Post yesterday that New Zealand was relatively better placed than other advanced countries, thanks to its low public debt, sound banks, flexible policies and mix of exports.
“This global recession is sizeable. It’s the first time in 60 years the IMF projects the world economy to shrink, and the vast economies could shrink by 3 to 3.5 per cent of gdp this year. We don’t see quite as high an impact on New Zealand.”
Mr Brooks said he broadly agreed with Prime Minister John Key’s relatively upbeat assessment delivered to trade unionists last week.
Countries that relied on car manufacturing and hi-tech exports had been particularly badly hit. Last week the IMF issued its global forecasts tipping Japan to shrink 5.8 per cent, Europe 3.2 per cent and the United States 2.6 per cent.
Food commodity exporters and “hard commodity” exporters, such as Australia, may not be as badly hit.
Mr Brooks said New Zealand would likely start a gradual recovery in 2010 and return in the medium term to potential growth of about 2.5 per cent.
A strong banking sector and a flexible exchange rate were also helping New Zealand avoid the fate of countries such as Iceland and Ireland.
Foreign debt was either fully hedged or was denominated in NZ dollars, so banks here did not have to borrow as many US dollars to meet their funding needs.
New Zealand’s key vulnerability was its level of short-term borrowings overseas.
Reserve Bank official interest rate cuts had delivered a substantial economic stimulus. That had not been the case in some countries where banks under stress had not passed lower rates on to borrowers. There was also greater stimulus from lower interest rates in the pipeline as borrowers rolled off fixed rate mortgages and the Reserve Bank cut rates again.
