International confidence is fragile — jittery even.
The post-WWII global order is breaking down in front of our eyes. Globalisation has peaked. Great power competition is intensifying. Democracies are coming under pressure.
Much of this has been writ large since Russia invaded Ukraine.
China and the United States coulddo much to resolve the confidence issue, but have yet to do so.
Yesterday, the UK finally met all the conditions to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) — the major Indo-Pacific trade bloc which includes New Zealand among its members.
“Having a major economy like the UK inside CPTPP brings the Atlantic to the Indo-Pacific in a way that will strengthen the rules-based trading system in our region and will benefit New Zealand exporters, provide greater certainty, and enhance regional supply chains for trade,” said Trade Minister Damien O’Connor.
“As a G7 member and the world’s sixth largest economy, the UK’s CPTPP accession emphasises the appeal of the agreement and its importance as a key piece of regional trade infrastructure,” O’Connor added.
The UK’s accession to the bloc will complement the gold-standard outcomes of the NZ-UK Free Trade Agreement, which will mean that 99.5 per cent of New Zealand’s current goods exports to the UK will be duty free once it enters into force. At full implementation, exports are expected to grow by over 50 per cent and GDP by up to $1 billion.
This is good news at a time when the world is awash with concerns on other fronts.
New Zealand was a founding partner of the predecessor TPP group and has much to be proud of in our negotiators’ trade advocacy.
New Zealand will get a chance to proselytise on free trade when O’Connor hosts CPTPP trade ministers for a meeting of the CPTPP Commission at Matariki weekend, July 15/16.
But the risk of financial contagion is underpinning global fears and the protectionist instinct — including from the US — is riding high.
The financial risks are now worrying regulators, investors and depositors alike.
It’s almost inconceivable that two of the world’s most prestigious banks have hit judder bars.
The chair of the Saudi National Bank resigned for “personal reasons” less than two weeks after his comments spurred investor panic over Credit Suisse. The upshot was an emergency takeover by its larger Swiss rival, UBS.
Deutsche Bank, one of the world’s largest banks, has also come under intense scrutiny. Shares fell sharply a week ago, dragging down other major European banks and fuelling fears about a deepening banking crisis.
Are New Zealand’s banks at risk?
Our key trading banks are all owned by Australian banks: ANZ — the largest — is owned by Australia and New Zealand Banking Group; Westpac NZ’s parent is Westpac Australia; BNZ is owned by National Australia Bank and ASB by Commonwealth Bank.
There have been comfort statements in New Zealand.
But the most telling comments have come from Australian Treasurer Jim Chalmers.
Writing in the Australian Financial Review yesterday, Chalmers said the collapse of Silicon Valley Bank and Signature Bank in the US and the takeover of Credit Suisse have sent waves through global financial markets over the past month but Australian banks are well-capitalised, well-regulated and well-placed to deal with this new source of volatility in the global economy.
“We are confident but not complacent in the face of these pressures.”
Chalmers affirmed that the banks had more than met their requirements under the Basel III protocols, the international regulatory accord to strengthen the regulation, supervision and risk management of banks that was agreed to after the GFC found Northern Hemisphere banks to be wanting.
Irrespective, financial markets run on fear. And while we would appear to be sheltered from any major waves — as our system was during the Global Financial Crisis — there are regional concerns.
Trade Minister Damien O'Connor. Photo / Mark Mitchell
Southeast Asian central bank governors and finance ministers wrapped talks in Bali yesterday on how the region can remain resilient in the face of a spike in global risks.
Geopolitical risk is taking centre stage.
McKinsey has for some time now rated geopolitics above capital issues as a key risk which should be front and centre at board discussions.
Not just for multinational corporations, with centres around the world. But also for exporters and importers who have to grapple with supply chain risks, currency fluctuation, the impact of sanctions and more.
In Europe, there are still implications for energy prices from the Ukraine war. Russia is a major global energy player. It is one of the world’s top three crude producers behind Saudi Arabia and the US. Crucially, it supplies much energy to Europe.
Oil and natural gas revenues made up 45 per cent of Russia’s federal budget in 2001. It is in Russia’s — and Europe’s — interest for this war to resolve.
Chinese President Xi Jinping has indicated a potential peace plan to Russian President Vladimir Putin. That has yet to emerge.
Meantime, the US has suggested a range of new sanctions against China if it offers military assistance to Russia.
If that occurs, New Zealand will be encouraged to follow suit.
Right now, New Zealand is probably in a recession but the Federal Reserve policymakers have targeted a “soft landing” for the US economy.
We are a cork bubbling on this volatile international ocean.
Major policy initiatives in the US like the Inflation Reduction Act and Chips Act are a concern.
But with the UK joining CPTPP, maybe it is time for the US to reconsider what it is missing out on.
