Stormy Outlook Ahead

New Zealand’s economy contracted in the fourth quarter at its fastest pace in 16 years as the global turmoil worsened a domestic slump, putting interest rate cuts back on the agenda. The Reserve Bank of New Zealand (RBNZ) is now torn between pressure to lower interest rates to revive growth and the need to keep the return on New Zealand’s currency attractive enough to lure foreign investment. “It may yet force the RBNZ’s hand to do more, either on the rate front, or in signalling the potential for rates to remain at low levels for an extended period,” said ANZ-National economist Philip Borkin. Only Iceland, which imploded under the weight of the global financial crisis last year, had more net external debt as a percentage of GDP among the OECD group of rich nations. New Zealand’s trade partners such as Japan, South Korea, the United States, Britain and Taiwan had all suffered contractions between 1.5% and 8.4% in the fourth quarter.