Kiwis under pressure

The recent Anzac Day focused my mind on Australia’s special relationship with New Zealand – our cousins across the ditch.

As the Anzac legend tells us, we have fought side by side with the Kiwis in wars, even when we’ve been sporting and cultural rivals. It is a special relationship shaped by our common history and geography.
As well as fighting together in wars, we’ve also been allies in trade wars and the fight for a fair deal in the global economy. Our economies are similar, but in the current global financial crisis, NZ has experienced a slowdown earlier than us, and whether they’ll recover quickly remains to be seen.
New Zealand is expecting weak growth in 2009, but with stronger results in 2010. The fall in commodity prices, and the slowing in Asia, has hurt Kiwi exports, but the lower exchange rate and fiscal intervention is helping NZ exporting businesses. According to the OECD, the global financial crisis is hitting New Zealand right at the wrong time – when they are undertaking difficult domestic adjustment. The OECD has pointed out NZ’s large current account deficits and higher external debt make NZ more vulnerable to external shocks like the global financial crisis. The exchange rate is helping the tradeables sector, and shifting resources away from domestic consumption and the housing sector.
The NZ approach to fiscal policy has been different than Australia’s. Followers of rugby’s trans-Tasman Holy Grail the Bledisloe Cup would appreciate that the NZ Government has taken a “rolling maul” approach (that is, staggered stimulus) to fiscal policy, while Australia has undertaken a larger, bolder stimulus (more like Campese inspired forward move than an grueling All Black forward pack).
However, the strong fiscal stimulus in Australia will also help boost the Kiwi economy, and there are also signs of some stabilisation in equity markets and financial markets in NZ, with few signs of credit rationing.
Also in a reverse brain-drain, NZ is also attracting back many of its “knowledge workers” from the northern hemisphere, which should boost the local stock of human capital and its associated networks.
In trade terms, NZ remains an important export destination for Australia, with almost 17,900 Australian businesses exporting there with over 30% of exporting SMEs having a presence in NZ too. While the slower NZ economy has meant a slight drop in SME activity, NZ is still easily number one market in terms of numbers of Australian exporters. NZ and Australia also remain large foreign investors in each others economies.
Finally, ANZAC day also focuses my mind on another special relationship – that with Turkey. Two years ago, on ANZAC day in 2007, I suggested that Australia play football (soccer) against Turkey each ANZAC day to commemorate the Gallipoli landings and to build relationships with Turkey (after all we don’t have an equivalent of the Bledisloe Cup or the Ashes with Turkey).
I am pleased to say that the Football Federation of Australia have taken up this suggestion and with great skill and speed (like a dashing Harry Kewell run for Galatasaray) have turned this dream into reality. Now there will be a number of youth matches (at under 18 level, for example) with Turkey to celebrate the spirit of ANZAC.
Australian and NZ forces were there in 1915, and now, almost a century later, the trans-Tasman spirit is being joined with our new allies in trade and sport in Ankara. That’s really something to celebrate as Australians remember our enduring ties with New Zealand, and a bright future together with Turkey.

*Tim Harcourt is Chief Economist with the Australian Trade Commission and the author of The Airport Economist (see  www.theairporteconomist.com). 

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