Thursday, March 5, 2009
Privately, with friends and family, I’ve been referring to New Zealand as Iceland 2. The financial situation here is not quite as absurd as Iceland’s, but the comparison is legitimate because of New Zealand’s extremely high debt load.
I wouldn’t be surprised if this results in Australiazealand.
—Private email to a reader
The economy is in its worst recession on record, the current account deficit is ballooning, the government faces a sea of red ink and credit ratings firms have the country under the microscope – is New Zealand the sick man of the South Pacific?
Once a darling of foreign investors because of high interest rates, the country appears almost like Iceland, judging from the current account deficits it has accumulated over three decades.
After weathering the Asian economic crisis and drought in 1997 and 1998, the $95 billion New Zealand economy enjoyed its strongest growth since the 1970s, thanks partly to soaring commodity prices and debt-fueled consumer spending.
Now the economy is shrinking as the once-hot housing market has stalled, skyrocketing fuel and food prices have turned consumers cautious and the credit crunch has hit.
Unlike Iceland’s banks, which were brought down by aggressive and highly leveraged growth, or European banks rescued by their governments, New Zealand’s banking industry shows no signs of stress yet.
The big Australian banks – National Australia Bank, Westpac Banking, Australia and New Zealand Banking Group and Commonwealth Bank of Australia – dominate the market and have so far escaped the global meltdown.
Sue Trinh, a currency analyst at RBC Capital Markets in Sydney, said the likelihood of New Zealand’s becoming a customer of the International Monetary Fund was still low, given banks’ strong capital.