KEY POINTS:
Reserve Bank Governor Alan Bollard has returned from a roadshow around major financial capitals reasonably confident New Zealand banks will be able to raise the funds they need overseas, but not in the least sanguine about prospects for the world economy.
Together with Treasury Secretary John Whitehead and
their respective deputies, Grant Spencer and Peter Bushnell, Bollard's mission was to brief investors on the state of the New Zealand economy, the soundness of its banks, the Crown's books and the Government guarantee of banks' wholesale debt issues which was put in place late last year.
"We got a very good hearing," he said.
The Government guarantee was seen as stacking up against those available from other countries, and New Zealand's reputation for having a sound macro-economic framework was paying off.
The banks' high credit ratings and plain vanilla business models were also a plus.
However, one of the main channels by which New Zealand is vulnerable to the global credit crunch is that up to 40 per cent of its banks' funding is imported.
The term funding markets which had frozen in the latter months of 2008 had started to reopen this year, Bollard said in a briefing to journalists yesterday. Australian parents of New Zealand banks have been able to get some substantial debt issues away.
Asked if he was confident New Zealand banks would be able to roll over their imported funding, Bollard said, "I'd say the signs are pretty good. Each bank has to decide if and when it wants to do that, and in general liquidity positions are pretty secure around the banks."
But it was a very unstable world, he added.
While Moody's has reaffirmed New Zealand's triple-A sovereign credit rating, Standard & Poor's has put it on a negative outlook, citing a deteriorating fiscal outlook in the context of very large external debt.
"We talked to Standard & Poor's and they are saying to us that they expect we will stay AA+, but they will obviously keep their options open for a little while on that," Bollard said.
But the picture of the world economy that emerged from talking to his central banker colleagues was "not good at all".
"There is a bit of an argument between those who think it could trough in the middle of this year and be followed by a fragile recovery and those who say no, it is a much longer event."
Bollard said he had heard central bank governors say they could not forecast 2010 because of the level of uncertainty around.
They were struggling to forecast household consumption because they had never seen seen wealth take such a hit.
"There is also a lot of uncertainty about China and whether it manages a reflation that at least keeps some reasonable growth going. That is still a possibility. Beyond that, most countries look pretty negative."
East Asian economies which relied on selling manufactured goods to developed countries had been very badly hit, Bollard said.
"It is looking worse than the Asian crisis of 1997/98, their previous low-water mark."
But while no one was immune, commodity exporters, including New Zealand and Australia, had been affected less than others.
So far, at least. It might be just that it takes longer to catch up with us.
"You could say it is a slower transmission, but that is really helpful because we have been able to observe what is happening in the Northern Hemisphere and move monetary and fiscal policy quite quickly - and the lags are always the problem with those sorts of policies."
He said he encountered "quite a lot of worry about both trade protectionism and financial nationalism, whereby either you get big international banks pulling out of host countries back to home countries and/or you get home country regulators taking actions in defence of their own systems which have beggar-thy-neighbour effects on other countries."
And as for what recovery would look like: "You have to assume it would be a new world balance."
The current account imbalances which have been tolerated, even encouraged, over the past 10 years or more would no longer be there.
Among East Asian countries the export-led model, underpinned in some cases by undervalued exchange rates, would no longer be pre-eminent.
"And in the Anglo countries you will have to see more domestic savings and more exports. The world is just going to demand more balance."
