By Roger J Kerr The $64 million dollar question is whether this global recession and banking collapse is fundamentally different to all other economic cycles and thus past "cause and effect" relationships do not hold up. In New Zealand's case, what we do know is that the value of the NZ dollar plays a big part in overall GDP growth. When the Kiwi is low our export industries and farmers do well and the economy expands (and vice-versa). In response to the bank economist doomsayers who cannot see any way out of the current NZ recession, I suggest they look long and hard at the chart below.
It is only a matter of time before GDP is growing positively again. It may go to 0.0% over the next 6-9 months due to the negative quarters in 2008, but from there the historical linkages suggest a rapid return to +4% growth. Back in 1990/1992 the economy performed poorly despite the lower exchange rate value. The difference then was that our export commodity prices collapsed to record lows, the Government was cutting expenditure and corporate NZ was still reeling from the 1987 share market crash. GDP growth stayed long for stronger in the face of a strong currency value in the 2005/2007 period due to the housing/retail boom fuelled by easy credit. Extended exporter hedging also delayed the adverse currency impact for a time through this period. Outside these periods of brief divergence, the economy has inversely tracked the fortunes of the NZ dollar value very closely. ---------------- * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.