Hard Time for New Zealand
It would be very hard to see how New Zealand's economy goes after the terrible earthquake that hit the country last month. At least for now, nearly 150 people died, and 200 people are still missing. Though the 6.3 magnitude is lower than the previous 7.1 in September 2010, the current earthquake has claimed more death tolls so far.
Nonetheless, the New Zealand's markets have relatively been calm. For instance, the benchmark stock index NZX 50 lost 1.5% to a twenty-day low just after the earthquake. It looks like that the disaster pulled the trigger of outpouring from the stock market, but it's mostly due to the concerns on the Middle East, the same as the other major indexes like S&P500 or Nikkei 225, rather than the earthquake itself.
Moreover, the bond market, the benchmark of "flight to safety", didn't budge even amid the turmoil. The yields of New Zealand's 10-yr government bond lowered on weekends somewhat, but it's, as is the same with the stock market, because of the Middle East.
The foreign exchange market, on the contrary, showed a different picture from the other two. The New Zealand dollar declined to a two-month low of 74.57 US cents last week, according to the Reserve Bank of New Zealand. The fund escaped the country for fear of a terrible shock, though it returned a little bit after Standard & Poor's confirmed that the nation's ratings aren't "immediately affected" by the earthquake.
One of the key elements for New Zealand's growth is government expenditure. The country's budget deficit relative to GDP is still below the OECD average. So, the government can afford to underpin the economy through budget expansion, especially for reconstruction, in the aftermath of the devastating earthquake.
The country would also have to rely on external demand to shore up the economy, given that it's uncertain how private demand, especially household consumption, rebounds after two consecutive shocks: Lehman and earthquake. New Zealand's exports have a nearly 30% share in GDP. That share isn't high compared to export machine countries like Germany or China, but it's still bigger than the UK or Australia.
The merchandise terms of trade rose to a 35-yr high last quarter. This environment would bode well for the country's exports.
Nonetheless, the New Zealand's markets have relatively been calm. For instance, the benchmark stock index NZX 50 lost 1.5% to a twenty-day low just after the earthquake. It looks like that the disaster pulled the trigger of outpouring from the stock market, but it's mostly due to the concerns on the Middle East, the same as the other major indexes like S&P500 or Nikkei 225, rather than the earthquake itself.
Moreover, the bond market, the benchmark of "flight to safety", didn't budge even amid the turmoil. The yields of New Zealand's 10-yr government bond lowered on weekends somewhat, but it's, as is the same with the stock market, because of the Middle East.
The foreign exchange market, on the contrary, showed a different picture from the other two. The New Zealand dollar declined to a two-month low of 74.57 US cents last week, according to the Reserve Bank of New Zealand. The fund escaped the country for fear of a terrible shock, though it returned a little bit after Standard & Poor's confirmed that the nation's ratings aren't "immediately affected" by the earthquake.
One of the key elements for New Zealand's growth is government expenditure. The country's budget deficit relative to GDP is still below the OECD average. So, the government can afford to underpin the economy through budget expansion, especially for reconstruction, in the aftermath of the devastating earthquake.
The country would also have to rely on external demand to shore up the economy, given that it's uncertain how private demand, especially household consumption, rebounds after two consecutive shocks: Lehman and earthquake. New Zealand's exports have a nearly 30% share in GDP. That share isn't high compared to export machine countries like Germany or China, but it's still bigger than the UK or Australia.
The merchandise terms of trade rose to a 35-yr high last quarter. This environment would bode well for the country's exports.
Labels: New Zealand
posted by Akihiro Gotoda at
11:36 AM
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