New Zealand’s Economic Outlook

Reserve Bank of New ZealandFebruary 2009

Off the record please…

1. International financial crisis

• Huge financial losses

• Credit expensive and scarce

• Big asset price falls

The financial crisis so far

0

50

100

150

200

250

300

350

400

Jan 2006 Jan 2007 Jan 2008 Jan 2009

0

50

100

150

200

250

300

350

400

Bear Stearns

Lehman Brothers / AIG / Freddie & Fannie

US TARP

Basis Points Basis Points

The financial crisis so far

0

50

100

150

200

250

300

350

400

Jan 2006 Jan 2007 Jan 2008 Jan 2009

0

50

100

150

200

250

300

350

400

Bear Stearns

Lehman Brothers / AIG / Freddie & Fannie

US TARP

Basis Points Basis Points

The financial crisis so far

0

50

100

150

200

250

300

350

400

Jan 2006 Jan 2007 Jan 2008 Jan 2009

0

50

100

150

200

250

300

350

400

Bear Stearns

Lehman Brothers / AIG / Freddie & Fannie

US TARP

Basis Points Basis Points

Large credit losses

0

200

400

600

800

1000

1200

Jun qtr 07 Sep qtr 07 Dec qtr 07 Mar qtr 08 Jun qtr 08 Sep qtr 08 Dec qtr 08 Mar qtr 09 (todate)

0

200

400

600

800

1000

1200

losses, Asia

losses, Europe

losses, Americas

Total new capital raised

USD billion USD billion

Large housing market corrections

50

100

150

200

250

1990 1993 1996 1999 2002 2005 2008

50

100

150

200

250

Index (1990 =100)

NZ

UK

US

Australia

2. International economic slowdown

• Slower trading partner growth

• Falling commodity prices

• Lower exchange rate

Much weaker world growth

Trading Partner Growth

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

quarters

quar

terl

y pe

rcen

t cha

nge

Asian Crisis

Tech bubble

Sars

Financial Crisis

0807060504

150

125

100

75

50

25

0

150

125

100

75

50

25

0

$US $US

Commodity prices falling - oil

0807060504

240

210

180

150

120

90

60

240

210

180

150

120

90

60

Index Index

Dairy

Total

Export commodity prices falling

20082006200420022000

80

75

70

65

60

55

50

45

80

75

70

65

60

55

50

45

Index Index

Lower exchange rate providing buffer

3. Effects on the NZ economy

• Pressure on businesses

• Pressure on household sector

• The economy adjusts

20082006200420022000

10

0

-10

-20

-30

-40

-50

10

0

-10

-20

-30

-40

-50

Net % Net %

Lower investment intentions…

20082006200420022000

20

10

0

-10

-20

-30

20

10

0

-10

-20

-30

Net % Net %

…and lower employment intentions

201020082006200420022000

30

25

20

15

10

5

0

-5

-10

-15

1.6

1.4

1.2

1.0

0.8

0.6

0.4

Annual % per 1000 people

House sales(RHS)

House priceinflation

House prices to fall further…

201020082006200420022000

30

25

20

15

10

5

0

-5

-10

-15

1.6

1.4

1.2

1.0

0.8

0.6

0.4

Annual % per 1000 people

House sales(RHS)

House priceinflation

House prices to fall further…

1009080706050403020100

8

6

4

2

0

-2

-4

8

6

4

2

0

-2

-4

AAPC AAPC

…and household spending to remain subdued

1009080706050403020100

6

5

4

3

2

1

0

-1

6

5

4

3

2

1

0

-1

AAPC AAPC

Projection

Means a slowing economy

1009080706050403020100

6

5

4

3

2

1

0

-1

6

5

4

3

2

1

0

-1

AAPC AAPC

Projection

Means a slowing economy

20102009200820072006200520042003

6

5

4

3

2

1

0

6

5

4

3

2

1

0

% %

… and should provide significant inflation relief

Prompting significant OCR reductions

100908070605040302010099

10

8

6

4

2

10

8

6

4

2

% %

Focus on financial stability

• Providing liquidity

• Government Guarantee Schemes

• Other actions

End of presentation