Academic journal article The Reserve Bank of New Zealand Bulletin

NZ Has Capacity to Weather Shocks

Academic journal article The Reserve Bank of New Zealand Bulletin

NZ Has Capacity to Weather Shocks

Article excerpt

27 January 2012

The European sovereign debt crisis and Canterbury earthquakes were two bad jolts to the New Zealand economy in 2011, but the economy and financial system have the capacity to weather such shocks, Reserve Bank Governor Alan Bollard said today.

In a speech to the Canterbury Employers' Chamber of Commerce in Christchurch, Dr Bollard said both events had important economic implications and had created uncertainty. While a clearer picture of the future is gradually emerging, we are moving from 'unknown unknowns' to 'known unknowns', he said.

Nonetheless, the effects of both shocks could continue to rumble on for some time.

"New Zealand's geographical isolation is no protection from economic events abroad. If major world economies have a significant economic problem, then that is going to affect us too, as New Zealand has seen in our export commodity prices, currency, and funding our foreign debt," Dr Bollard said.

While New Zealand's financial institutions depend on global credit markets, including Europe, for funding, there are buffers in place to ensure our banking system has adequate liquidity and capital, and the Reserve Bank has appropriate tools, more so than in the 2008 Global Financial Crisis. …

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