NZ Institute kick off recession strategy series today
“The end of the golden weather: The financial crisis, global recession and what this means for New Zealand,” has been released today by Benedikte Jensen of the NZ Institute.
This is the first in a series of in-depth papers from the NZ Institute that will look at the current global economic environment, what risks & opportunities it presents to New Zealand and measures and actions required to ensure that New Zealand emerges strongly. A key conclusion is that this is more than just a business cycle, and the crisis may have a long term effect on global economic growth.
Some background and context:
• The global financial crisis began over a year ago with the emergence of the US sub-prime mortgage crisis and has continued to intensify with the collapse of major financial institutions, ongoing sharemarket volatility and drying up of access to credit worldwide.
• The International Monetary Fund (IMF) has shaved two percentage points off its forecasts for the global economy in 2009 since July 2008. The IMF is also now predicting output in all advanced economies to contract on a full year basis in 2009 – the first time this has happened in the post-war period.
• The OECD has concluded that this will be the most severe global recession since 1981. An ‘L’ shaped recovery is predicted (i.e. A slow recovery where the US and Eurozone experience four quarters of negative growth, followed by several quarters of anaemic growth in late 2009 and early 2010. Stronger growth does not return till September 2010).
• Economic growth is slowing in Asia and other developing countries.
• Government interventions have begun to restore confidence but key markets are still significantly dysfunctional.
This paper identifies four factors that could lead to a downward structural shift in global growth over the next decade which are household indebtedness, credit contraction and risk aversion, higher tax burdens due to worsening fiscal positions of advanced economies and a lack of a global growth engine for the economy due to the US looking like Japan in the 1990s.
It also looks in depth at implications of a global recession for New Zealand, which would likely impact through the following three main channels:
1) A reversal of the commodity boom and subsequent impacts on rural incomes and the rest of the economy
2) Credit contraction hitting investment by New Zealand companies and New Zealand’s ability to attract foreign investment
3) Difficulties for New Zealand in continuing to finance our large overseas debt as foreign investors become more risk averse
In the coming months the NZ Institute will also release focus papers on Growth Channel and Credit Channel Exposures, The Fiscal Position and Stimulus, Savings & Capital Markets, Government Balance Sheet and New Zealand’s place in the world. All papers will provide recommendations for concrete actions and solutions to ensure that the New Zealand economy emerges strongly.
NZ Institute highlights, on both introduction and conclusion of this paper, that it is the end of the golden weather and we urgently need to prepare New Zealand for what may be an unprecedented global environment over the next decade.
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Congratulations to the NZ Institute for the new series of papers, promising to identify “a range of concrete actions and solutions that will have a long termmpact on New Zealand’s performance”.
Identifying the “NEED for strong leadership to mobilise the country around a more ambitious growth programme” is probably the most that can be expected from the introductory paper 1 (of 6), outlining what can be expected from the ones to follow.
I hope to-the-point discussion and debate with the authors will be allowed and possible – something that was missing from the excellent previous papers edited by David Skilling, and which, I believe, resulted in less public acknowledgement and influence, than what the papers deserved.
Fantastic to see the NZ Institute continuing the vital discussion of our economic well-being especially in the midst of the hectic silly-season. A lot to process here. As with most people I am sure, I will have to leave serious analysis and feedback for over or after the holiday period. But well done NZI! Keep it going!
And Jens – Ownership Society – yes please!
Keep up your campaign for it and educating the rest of us about it too.
As individuals, and as a nation, we have to get out of the debt cycle and into savings and investment!
Well done to Mark and NZI for initiating the dialog in this blog about ideas that might benefit the economic outlook for the country. I say to readers and commentators at this blog, to keep posting interesting ideas here for Mark and NZI to take them up with our politicians and hopefully they will listen (I have not doubt that they will do). Merry Xmax to all.
Cheers.
Correction:
I have not doubt that they will do)
meant to say:
I have no doubt that they will do)
Slightly off topic but another idea to throw out there…
A major economic cost in the next few years in our economy and hitting all of our wallets is going to based on Climate Change policies. In the last few years we have already witnessed just how much more we are potentially going to pay for our energy needs. I have just read an interesting article / open letter to the U.S.A. President-elect in New Scientist magazine (6-Dec-08 issue, Yes You Can Mr Obama) where the Climate Change Features Editor strongly argues for a simple carbon tax and 100% dividend approach as opposed to the cap and trade schemes (i.e. our carbon trading). Carbon trading schemes are a complicated beauracratic nightmare that already no one understands (think RMA x 10 here people) and unenforable whereas a tax is simple with positive economic and environmental results for those that reduce their carbon footprint.
Tax and dividend approach works like this:
TAX: Carbon tax on all fossil fuels. Such a tax can be adjusted to reflect the harm done by different fuels: i.e. coal would be taxed more heavily then natural gas. The tax would be raised each year to make fossil fuels more expensive and renewables relatively cheaper.
100% DIVIDEND: Here’s the clever and important bit (to politicians selling this to the public). EVERY penny raised from the carbon tax should be divided equally among a country’s citizens.
So, people who live in a huge house, drive gas guzzling cars and fly lots will lose out under this regime. The dividend they will receive will be outweighed by what they pay for fuel, flights and heating. Most people however will be richer. Families and retired people struggling to make ends meet would gain far more from the dividend than they lose in higher bills.
“It’s bold, simple and our best hope of averting catastrophe.” Which means – it just might work!
go to http://www.newscientist.com for more info
PS. I support this concept knowing that my household is going to be one of those huge house, gas guzzling, lots of flying losers.
Falafulu – We cannot leave it to them alone, because parties with their ideological priorites and obsessions might not easily take on recommendations coming from outside. We must help in churning up public interest and support for the arguably most promising ideas emerging, and some to-the-point discussions & debates on this site – for and against – would be very helpful, I believe.