Saturday, January 24, 2009

UK recession confirmed. But what does it mean for New Zealand?


The story of the year has to be the credit crunch.
Today it was confirmed that the UK is officially in recession.
In the final quarter of 2008, the UK economy shrunk by 1.5% following a 0.6% drop in Q3.
This week, the latest unemployment figures raced towards 2 million, with talk of it approaching 3.5 million in 2010.
Car output in December is half what it was a year ago.
So why should New Zealand care on what happens here?
Well, the UK still remains a big market for New Zealand produce.
And under Liarbour, similar economic policies were followed, though at least for a few years Cullen managed a surplus before he eventually blew it off.
Gordon Brown has ran a huge deficit for many a year now.
But both countries shared a boom based largely on housing and the consumer.
And these are the sectors suffering immensely.
The UK finance sector is also in crisis and New Zealand has also lost many finance companies.
At least UK savers are not losing out from the banks going under, yet.
Will New Zealand go the same way?
Fortunately, New Zealand has a fresh start, a fresh start Gordon Brown is denying the British.
New Zealand has a New government and as the Roy Morgan Poll shows, most Kiwis think New Zealand is heading in the right direction.
By contrast the British mood is very glooomy, helped by a media ever eager to hype up the recession.
But governments have a role to play. It is their impact on confidence.
If National plays its cards right, New Zealand could be spared the worst.
How National plays it will also mean if they will be spared the worst.
Recessions can make governments unpopular.
For a time in mid-2008 Gordon Brown looked all finished as the Tory opposition took leads in excess of 20%.
Then Gordon brown, you might say, had a good recession.
People seemed reassured by his policies like bailing out the banks and reducing VAT (GST).
Now such policies are clearly showing not to be working.
His support is slipping again and looks set to tumble further.
How well informed are Kiwis on the global state of the economy? And local reasons too.
Yes, the credit crunch is a global problem.
But New Zealand has its own reasons, explaining why New Zealand was one of the first into recession, even beating Britain.
Is John Key and National sheeting home the blame on Liarbour for leaving a decade of deficits.
I can only hope so and judging by the polls they could well be.
In the world of politics and economics, recessions are strange things and how they impact on party support.
How it impacts on National's support, as well as Liarbours, depends on their own performance.
And so far National seems to be doing it right.

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