Aussies are different from us, Bollard tells markets

We say recess-shun; the Aussies say recess-sheen.

Well, they would, if they’d had one. But they didn’t – a point Reserve Bank governor Alan Bollard made to the Trans Tasman Business Circle and the wider financial community this afternoon.

Australia and New Zealand are split by more than the Tasman Sea, disagreements of vowel pronunciation; and the fact they have a decent cricket team and we don’t.

"New Zealand and Australia have very different resource endowments, financial markets treat us like Australia, but actually we are quite different.”

And Dr Bollard hinted he doesn’t rate the chances of the government achieving its goal of catching the Australian economy.

“We talk about catching up with Australian incomes, but we have better chances of taking advantage of their growth."

More immediately, he said the financial markets need to take heed of the differences between the two economies.

“Australia has avoided negative growth, and its prospects are driven by strong terms of trade, vast mineral deposits, the Chinese market, and rapid population growth.

"New Zealand has had a recession, and the pick-up is slower and more vulnerable - a difference financial markets do not appear to appreciate.

"This is particularly evident in the relatively stable cross-rate on foreign exchange markets.”

When that particular penny drops, there could be a painful adjustment, not only for those investors but also for New Zealanders, he warned.

“If financial markets can't see the differences, they will eventually lose money, and it will hurt the New Zealand economy."

Dr Bollard said New Zealand could improve its prospects by taking advantage of Australia's very strong future growth potential.

"Australia is a lucky country, but we could be a lucky neighbour."

He cited a new minerals boom beginning in Australia, and said the flow-on across their economy would mean further it would look even less like New Zealand.

That does though mean opportunities for New Zealand manufacturers and services.

"Australia will likely be a very strong growth market, and could help New Zealand to indirectly benefit from East Asian growth. Less inflation pressure here will help our competitiveness, assisted by relative exchange rate stability and the spreading Single Economic Market.”