Apparently too few of us are depressed! We’re not taking this whole credit crisis seriously enough! Isn’t it funny that when the rest of world was booming, we were too laid-back and missed out on most of the growth? Now the world is in a major recession, we’re still too laid back. If New Zealand were a dog then clearly it would be a Labrador. Even when it’s upset it looks happy!
Still, it looks like 2009 has a bit of pain lined up for us. However, we have to be careful to not throw the baby out with the bathwater. Interestingly, like the USA, New Zealand has been in recession for four quarters (with another three or four now forecast) yet we are not feeling it nearly as badly as the USA. Why?
We are different in so many ways:
- We didn’t experience the same highs as other countries, so we have less distance to fall. Let’s face it, New Zealand has not been a high-growth economy and businesses here lack the “pace” of businesses overseas. When your economic growth is generally low, the difference between growth and recession isn’t as great.
- Maybe some of it is driven by the media as well. Bad news sells and journalists need a story. The media distorts our world view by not providing a balanced perspective. When is the last time we heard good news?
- We have inherently low-risk businesses (ignoring property and finance companies!) We don’t seem to have too many highly-geared companies because of historically high borrowing costs.
- New Zealand is a country of small businesses. Our businesses are typically funded using residential mortgages. Although this is now tougher, it is not nearly as tough as business lending. It also distorts all of the statistics that everyone quotes about high debt-to-income ratios. (Incidentally our consumer finance debts are a lot lower than overseas.)
- Small businesses are far less likely to reduce staffing (hard to regroup once the economy turns.) I have noticed a big increase in businesses reducing working hours, which is a very sensible business strategy.
- If unemployment goes up it is likely to be in retail. Yet young people can defer leaving school so I tend to think of it as “softer” unemployment. Unskilled labour also tends to feel the brunt of a recession, but can be soaked up by infrastructure projects and maybe (for the first year in decades) we can find enough seasonal workers for fruit picking!
- Kiwis are used to paying high interest rates, so we have a lot more upside as interest rates fall. The rate cuts by the Reserve Bank are likely to put about $2 billion per year back into the economy. No doubt a lot of that will go towards repaying debt, but some will also go towards spending.
- We have a welfare system – which isn’t flash, but isn’t that bad either!
- Importantly, and unlike the United States, we never got into giving home loans to people without jobs and without income (called ‘subprime’ in the US). We also didn’t build entire new towns (with the odd exception, like Five Mile in Queenstown!).
- Our banks have always owned their mortgages. In the US, mortgages were securitised (sold to investors). Greedy self-serving investment bankers are at the heart of the financial crisis. Luckily New Zealand was too small to support too many of these muppets.
- Unlike the United States, Kiwis cannot walk away from their mortgage and borrowing commitments. In the US, if your house value drops below your mortgage, you can simply send the house keys in the mail to the bank. This makes mortgages far more risky than in New Zealand.
- Our Kiwi dollar has dropped by 36% against the US dollar, which makes New Zealand relatively cheap compared to the rest of the world. This has to be great for exporters and for tourism when the rest of the world … eventually kicks into recovery. As an aside, I’d have thought that with the world turning to chaos … New Zealand would be a great place to holiday – precisely because we are chilled out!
The next year won’t be easy, but us Kiwis are made of tough stuff. Maybe this global crisis is New Zealand’s opportunity to sneak back up the OECD ladder. For all those pessimists out there, it is time to roll up your sleeves and do something about it. We are a very small fish in a very big pond. Even if the pond shrinks, it is still a very big pond!
Principal and Adviser
The former General Manager at ANZ National Bank, JB has brought is broad depth of experience in the banking industry to Squirrel, which is his own company. JB has directly managed over $30 billion of mortgages and deposits and is a regular commentator on the mortgage market in the press and on TV. JB has a BCA from Victoria University and has undertaken post graduate study at University of London. He’s easy going most of the time, except when it comes to his calculator (he’s pretty neurotic with it).