Tyndall Comment: The Hare and the Tortoise?
New Zealand and Australia are weathering global financial and economic distresses better than most. This is due, in part, to our continued ability to tap international credit markets. In this month’s Tyndall comment, we discuss our expectation that New Zealand’s recession will deepen further in coming months. And, the different paths emerging for our and the Australian economies.
Economic conditions in New Zealand and Australia are substantially 'less bad' than in much of the Northern Hemisphere currently. There does not yet seem to be the acute level of financial and economic distress visible that we can see in the US and parts of Europe, despite the fact that both New Zealand and Australia were enthusiastic participants in the global credit boom and the fact that both countries relied to a very great extent on inflows of foreign funding to finance their respective domestic credit booms. Given that many of the other countries which also employed high levels of foreign financing for their domestic credit booms have since fallen by the wayside in the current global slump (Iceland being the most extreme example), the resilience of the Antipodean economies is remarkable.
Intriguingly, we find that both countries have been able to continue to tap international credit markets remarkably successfully over recent months, although no one is quite sure why this has occurred. Explanations for this relative success have ranged from the local institutions' long term experience in managing their foreign funding requirements; the beneficial effects of the government guarantees; the countries' assumed commodity exposures or even simple luck but, whatever the cause, the Australian and New Zealand banking systems have not suffered the funding pressures that have sunk Iceland, made life difficult for the UK banks and which now threaten to destabilize the Eastern European economies.
Certainly, the banks are finding it a little more expensive to raise money from abroad and the inflows have not been as plentiful as they once were (hence the sudden reversal in the local currencies) but it nevertheless seems that these Southern Hemisphere countries have been the exception to the global 'rule'. Of course, this situation could change in an instant but at this time we see little reason to expect such a shift and therefore we expect Australia and New Zealand to be spared the worst effects of the global banking crisis in the near term.
Read the full Tyndall Comment.
Tyndall