The Economics of Money and Financial Markets in New Zealand
Contents:
The number of new domestic retail investors participating directly in the New Zealand stock market appears to be increasing over time, helping to enhance market liquidity and international interest. If this trend is sustained, more firms may be encouraged to publicly list as an alternative to bank funding or private equity. The growth in KiwiSaver funds may also support the development of the domestic equity market. Crowd funding is a new way for small firms to raise capital.
A service provider acts as an intermediary between companies in the early stage of development, and investors. Firms issuing securities through crowd funding require less disclosure than companies listed on the registered exchange, NZX. Crowd funding is one example of wide ranging regulatory reform over the past several years aimed at reducing capital-raising costs for both listed and unlisted firms. This regulatory reform is also intended to increase the overall level of investor confidence in New Zealand financial markets.
With respect to debt markets, the breadth and liquidity of the government bond market can influence corporate debt market development. A well-developed and liquid government yield curve, for example, can assist in the pricing of corporate securities, and therefore more accurately determine the cost of capital for firms. Historically, the lack of long-term New Zealand government bonds to act as benchmark securities may have limited the ability of corporates to issue long-term debt and contributed to the corporate bond market remaining small and illiquid.
Since there has been increased issuance in the New Zealand government bond market to fund fiscal deficits stemming from the recession and the rebuild of Canterbury figure B2. Throughout this period, the New Zealand Government has faced relatively low borrowing costs by historical standards , while a lack of national savings and strong international demand led to a rise in the proportion of non-residents holding New Zealand government debt.
The development of the Local Government Funding Authority, which helps local authorities throughout New Zealand raise funds for capital expenditure more efficiently, has also encouraged a significant increase in local government debt issuance since The long-term debt of New Zealand banks, when issued domestically, can also help facilitate capital market deepening. In recent years, the issuance of bonds by New Zealand banks has been reasonably subdued, reflecting the role of domestic retail deposits in largely meeting bank funding requirements see chapter 5.
Issuance has picked up somewhat over , as banks have rolled over their debt to maintain their presence in the market. In terms of New Zealand non-financial corporates, widening bank funding spreads and tighter bank lending conditions during the crisis precipitated an increase in activity in the local corporate bond market, as large and highly-rated firms sought to obtain cheaper, more diversified sources of funding figure B3.
Issuance subsequently declined, partly due to increased competition for corporate lending from the banking system. Over time, continued growth in corporate bond issuance should help to build market liquidity and broaden the investor base for corporate debt in New Zealand. However, the limited number of New Zealand non-financial corporates in rating categories which meet the majority of institutional investor mandates typically single-A and above may impede new issuance over the longer term. The NZX is an example of a public market where new stock is issued and sold to investors who become shareholders.
Private markets involve the non-public offering of debt and equity, typically to a small number of investors. Large firms may privately place large debt issues, while firms in the early stages of development might raise funds through private equity, and venture and angel capital markets.
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Note, economic growth can also influence financial market development — in this sense causation can run both ways between deep and liquid capital markets and long-run economic growth. By contrast, funding for the business and agricultural sectors provided by banks and non-bank lending institutions amounts to around 55 percent of GDP. Read more information on how the Reserve Bank releases information. Go to the live-stream. Live-streams of Monetary Policy Statement media conferences are scheduled to commence at 10am on release day. New Zealand has a universal superannuation scheme. Everyone aged 65 years old or over, who is a New Zealand citizen or permanent resident and normally lives in New Zealand at the time they apply is eligible.
They must also have lived in New Zealand for at least 10 years since they turned 20 with five of those years being since they turned Time spent overseas in certain countries and for certain reasons may be counted for New Zealand Superannuation.
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New Zealand Superannuation is taxed, the rate of which depends on their other income. The amount of Superannuation paid depends on the person's household situation.
In the ten years from , the number of New Zealanders over the age of 65 is projected to grow by about , This poses a significant problem for superannuation. The age of eligibility was gradually increased from 61 to 65 between and In a new individual saving scheme was introduced by the same Government, known as KiwiSaver.
The main purpose of KiwiSaver is for retirement savings, but younger participants can also use it to save a deposit for their first home. The scheme is voluntary, work-based and managed by private sector companies called KiwiSaver providers. As at 30 June , KiwiSaver had 2.
New Zealand's transport infrastructure is "generally well developed. Heavy road users must pay Road User Charges as well, there is limited use of tolling on state highways. There are seven international airports and twenty-eight domestic airports. Airways New Zealand , another state owned enterprise, provides air traffic control and communications.
New Zealand has 14 international seaports. Present-day telecommunications in New Zealand include telephony, radio , television , and internet usage. A competitive telecommunications market has seen mobile prices drop to some of the lowest in the OECD. Chorus wholesales services to retail providers such as Spark. In the mobile sector, there are three operators: Spark, Vodafone and 2degrees.
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New Zealand has a high rate of internet use. The Government has two plans to bring Ultra-Fast Broadband to From to , the energy intensity of the economy per unit of GDP declined by 25 percent. The most substantial electricity generation both existing and as remaining potential is located on the South Island and to a lesser degree in the central North Island, while the main demand which is continuing to grow is in the northern North Island, particularly the Auckland Region.
This requires electricity to be transmitted north through a power grid which is reaching its capacity more often. For many years New Zealand's economy was built on a narrow range of agricultural products, such as wool, meat and dairy. These products became New Zealand's staple and most valuable exports, underpinning the success of the economy, from the s until the s. In the s, prices for these traditional exports declined, and in New Zealand lost its preferential trading position with the United Kingdom when the latter joined the European Economic Community.
Between and , New Zealand changed from a somewhat closed and centrally controlled economy to one of the most open economies in the OECD. In the World Bank praised New Zealand as the most business-friendly country in the world. Settlements flourished in areas where these quarries were established. In the s, Dunedin became the richest city in the country largely on the back of investments from the gold rush.
Sheep farming began in the Wairarapa but soon spread up and down the east coast from Southland to the East Cape once rudimentary roads and transport became available. Sheep numbers grew quickly and by the mids, there were already a million sheep in New Zealand; by the early s, there were 10 million. In the s, Julius Vogel was periodically both colonial treasurer and premier. He viewed New Zealand as a "Britain of the South Seas" [] and began the development of infrastructure in New Zealand investing in heavily in roads, railways, telegraphs and bridges funded by public borrowing.
Economic activity was depressed for some years afterwards, until refrigeration was introduced in Refrigeration transformed and shaped the development of the economy but, in the process, established New Zealand's economic dependence on Britain. The success of refrigeration was directly related to the growth and development of farming in the country. In the 19th century, the bulk of economic activity was in the South Island of New Zealand.
From around , dairy farming became increasingly viable in areas which were less suitable for sheep, particularly in Northland, the Waikato and Taranaki. As dairying developed, the North Island slowly became more important to the economy. Up until that time New Zealand's monetary policy had been set in the United Kingdom, and the New Zealand Pound was issued by private banks. A separate central bank gave New Zealand's government control of monetary policy for the first time, [] although New Zealand remained part of the Sterling area by pegging its pound to the British Pound until the introduction of the New Zealand Dollar in , when the dollar was instead pegged to the Australian dollar.
Having a secure market with guaranteed prices also enabled New Zealand to impose high tariffs on imported goods from other countries. Tough import controls gave local manufacturers the ability to produce similar products locally, broaden the base of jobs available in New Zealand and still compete against higher priced imports.
This prosperity continued up to at which point Britain stopped giving New Zealand guaranteed prices for its exports. As a result, during the s and s the country's standard of living began to slip as the export sector was no longer able to pay for the level of imported goods required to meet the country's growing consumerism. Holyoake's deputy and successor, Jack Marshall , briefly Prime Minister in negotiated continued access for New Zealand exports to the United Kingdom under the so-called "Luxembourg Agreement".
Britain gained full membership of the EEC on 1 January , and all trade agreements with New Zealand came to an end, except the Luxembourg Agreement. In , New Zealand had the third highest standard in the world.
By , it had dropped to 22nd place. Having lost unrestricted access to its traditional market, New Zealand continued to search for alternative export markets and diversify its economy. Following the Yom Kippur War in October , an oil embargo was put in place by the Middle Eastern oil exporters, leading to the oil crisis. This compounded New Zealand's dire economic situation further. Inflation greatly increased as the cost of transport and imported goods soared, causing standards of living to decline.
Following the energy crisis resulting from the Iranian Revolution of that year, Robert Muldoon , the Prime Minister between and , instituted an economic strategy known as Think Big. Large scale industrial plants were established based on New Zealand's abundant natural gas. A new range of products for export such as ammonia, urea fertilizer, methanol and petrol were produced and with greater use of electricity with the electrification of the North Island Main Trunk railway with the goal that this would reduce New Zealand's dependence on oil imports.
Other projects included the Clyde Dam on the Clutha River , which was built to meet a growing demand for electricity, and the expansion of the New Zealand Steel plant at Glenbrook. Unfortunately for New Zealand, most of these projects only came on line at the same time as oil prices dropped during the s oil glut. The Muldoon Government did make some moves towards deregulation however. The Fourth Labour government , elected in July , moved away from government intervention in the economy and allowed free market mechanisms to dominate.
These reforms became known as "Rogernomics", named after Minister of Finance from , Roger Douglas. The changes included making the Reserve Bank independent of political decisions; performance contracts for senior civil servants; public sector finance reform based on accrual accounting; tax neutrality; subsidy-free agriculture; and industry-neutral competition regulation. Government subsidies including agricultural subsidies were eliminated; import regulations were loosened up; the exchange rate was floated; and controls on interest rates , wages, and prices were removed; and personal rates of taxation were reduced.
The deregulation of government-owned enterprises in the s and s reduced government's role in the economy and permitted the retirement of some public debt. The new Government was faced with an exchange rate crisis the day after it was elected. As a result, the dollar was floated on 4 March , allowing for the value of the dollar to change with the market. Financial markets were deregulated and tariffs on imported goods lowered and phased out. At the same time subsidies to many industries, notably agriculture, were removed or significantly reduced. A surtax on universal superannuation was also introduced.
The new corporations shed thousands of jobs adding to unemployment; Electricity Corporation 3,; Coal Corporation 4,; Forestry Corporation 5,; New Zealand Post 8, Inflation continued to be a major problem afflicting the New Zealand economy. From then on the Reserve Bank focused on keeping inflation low and stable, using the Official Cash Rate OCR — the price of borrowing money in New Zealand — as its primary means to do so. As a result, inflation rates fell to an average of 2. The Labour Party was greatly divided over Rogernomics, especially following the sharemarket crash and its effect on the economy, which slumped along with the rest of the world into recession in the early s.
The new Government was again thrown a major economic challenge, with the then state-owned Bank of New Zealand needing a bail-out to stay operational. Richardson's first budget in , nicknamed the ' Mother of all Budgets ', [] attempted to address constant fiscal deficits and borrowing by cutting state spending. Unemployment and social welfare benefits were cut and 'market rents' were introduced for state houses — in some cases tripling the rents of low-income people.
Deregulation also created a business-friendly regulatory framework which has benefited those able to take advantage of it. Deregulation has also been blamed for other significant negative effects.
New Zealand Financial Markets, Saving and Investment. Issue date: Friday, 9 November Status: Current. Author: Cameron, Linda · Davis, Nick. In contrast, capital markets are relatively less developed in New Zealand, with FMIs play a critical role in promoting financial stability and economic growth.
One of these was the leaky homes crisis , whereby the loosening up of building standards in the expectation that market forces would assure quality led to many thousands of severely deficient buildings, mostly residential homes and apartments, being constructed over a period of a decade. Unemployment continued to fall from —94 fiscal year, until the onset of the Asian financial crisis again pushed the rate higher. Between and , the New Zealand economy expanded by an average of 3. During this period, inflation averaged only 2.
Domestic activity slowed sharply over as high fuel and food prices dampened domestic consumption, while high interest rates and falling house prices drove a rapid decline in residential investment. Around the world instability was developing in the finance sector. This reached a peak in September when Lehman Brothers , a major American bank, collapsed propelling the world into the global financial crisis. Uncertainty began to dominate the global financial and economic environment.
Business and consumer confidence in New Zealand plummeted as dozens of finance companies collapsed. Fortunately for New Zealand, the recession was relatively shallow compared to many other nations in the OECD, it was sixth least affected out of the 34 member nations with negative real GDP growth totaling 3. In the GDP grew by a modest 1. Since then, commodity prices have rebounded strongly, with strong demand from China and the international situation improving. Commodity prices have been at record highs in recent quarters and remain elevated.
High commodity prices are expected to provide a considerable boost to nominal GDP growth in the near term. In the economy grew 3. HSBC chief economist for Australia and New Zealand, Paul Bloxham, was so impressed that he predicted New Zealand's growth would outpace most of its peers, and he described New Zealand as the "rock star economy of ". In increased attention was paid to the growing gap between rich and poor. In The Guardian , Max Rashbrook said policies implemented by both Labour and National governments have increased inequality. He claims that for 20 years outrage "has been muted", but "Alarm bells are finally beginning to sound.
Recent polling shows three-quarters of New Zealanders think theirs is no longer an egalitarian country". New Zealand's small size and long distances from major world markets creates significant challenges in its ability to compete in global markets. Australia, New Zealand's closest neighbour, is New Zealand's biggest trading partner. Since s New Zealand has pursued free trade agreements with many countries to diversify its export markets and increase the competitiveness of New Zealand's exports to the world. Trade agreements establish rules by which trade can take place and ensure regulators and officials in countries New Zealand is trading with work closely together.
Australia is New Zealand's largest bilateral trading partner. Since , CER has created a single market of more than 25 million people. The CER also creates a free labour market which allows New Zealand and Australian citizens to live and work freely in each other's country together with mutual recognition of professional qualifications. This means individuals who are registered to practise an occupation in one country can register to practise an equivalent occupation in the other country.
Banking regulation and supervision are co-ordinated through the Trans-Tasman Council on Banking Supervision and there are also ongoing discussions about co-ordinating Australian and New Zealand business law.
Airways New Zealand , another state owned enterprise, provides air traffic control and communications. Because of their small size, the Pacific Islands are some of the most vulnerable environments in the world and are on the receiving end of numerous cyclones every year. Register with us and content you save will appear here so you can access them to read later. Monthly indication of New Zealand labour market trends based on online and print job advertising. New Zealand's small size and long distances from major world markets creates significant challenges in its ability to compete in global markets.
China is New Zealand's second largest trading partner buying primarily meat, dairy products and pine logs. Since that year exports to China have more than tripled. The United States is New Zealand's third largest trading partner. Imports from the US include specialised machinery, pharmaceutical products, oil and fuel.
In addition to trade, there is a high level of corporate and individual investment between the two countries and the US is a major source of tourists coming to New Zealand. Many operate through local agents, with some joint venture associations.
Economy of New Zealand
According to the Ministry of Foreign Affairs, New Zealand and the United States "share a deep and longstanding friendship based on a common heritage, shared values and interests, and a commitment to promoting a free, democratic, secure and prosperous world". A growing number of New Zealand companies use the United Kingdom as a base to supply their products to the European market.
In the 21st century, Asian economies have been developing rapidly providing significant demand for New Zealand's exports. The Pacific region with numerous islands is New Zealand's sixth largest trading market and is growing every year. Goods exported to the islands include refined oil, construction materials, medicines, sheep meat, milk, butter, fruit and vegetables. Because of their small size, the Pacific Islands are some of the most vulnerable environments in the world and are on the receiving end of numerous cyclones every year.
When disasters occur, they often have severe social and economic effects which last for years. Since , New Zealand has co-operated with Australia and France to respond to disasters in the Pacific. New Zealand provides emergency supplies and transport, funding for roading and housing and the deployment of specialists to affected areas.
Through the Ministry of Foreign Affairs and Trade, New Zealand also provides international aid and development funding to help stimulate sustainable economic development in underdeveloped economies. New Zealand welcomes and encourages foreign investment, which is overseen by the Overseas Investment Office. Electricity — production by source: From Wikipedia, the free encyclopedia. Economy of New Zealand Auckland's central business district at night.
Population below poverty line. Taxation in New Zealand. Corruption in New Zealand. Social class in New Zealand. Transport in New Zealand. Telecommunications in New Zealand. Internet in New Zealand. Energy in New Zealand. New Zealand electricity market and Electricity sector in New Zealand. Finance company collapses, New Zealand. New Zealand free trade agreements. This section needs to be updated. Please update this article to reflect recent events or newly available information. Retrieved 5 March Retrieved 18 April Archived from the original on 23 January Retrieved 9 December Archived from the original PDF on 4 May Retrieved 17 March Archived from the original on 13 January Retrieved 14 June Retrieved 26 April Retrieved 24 November Retrieved 3 December Year ended 31 March ".
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