Global Crisis & New Zealand

Ongoing global economic crises on a New Zealand business

Introduction

The causes of changes in an economic activity over time, explores the theory of business cycles, which is sometimes called the theory of economic conditions. Today, there are many such theories which however, determine the nature of the cycle. So far, it is one of the most controversial and neglected problems. Researchers have involved in the study of situational dynamics that can be divided into those who do not recognize the existence of recurring cycles in public life, and those who stand in the deterministic position and argues that economic cycles occur with the regularity of the tides. This aim of this paper is to analyse the economic theory with an ongoing global economic crisis in New Zealand and its impact on society and business.

Discussion

The global crisis in New Zealand has led this country in difficult adjustment process as it is one of the most indebt countries among OECD area. The decline in the asset price and the decline in the credit demand mean that the deleveraging process has taken place. Nevertheless, deficit current account persistent looses a large external debt which makes the economy particularly vulnerable to the financial crisis and the contraction in the global demand. The economy was already in recession in 2008 and this trend remains continued throughout 2009, before recovering without any hesitation in 2010 amid massive ongoing process of ongoing deleveraging. No doubt those fundamental sound banks have contract many foreign borrowing, mostly short term and they must adapt through diversifying their funding sources and lengthening the duration of their loans (Mills C., 2010).

Households discovered that their resources are reducing with enhancement in unemployment which resulted in lower historical rate of saving. The shrinking demand was faced in an economic environment which ended in uncertain and tighter financing conditions. When companies started downsizing their investment this shows that the recession stage has been stated according the Theory of Downsizing. Furthermore, the combination of these elements leads to the sharp depreciation of the exchange rate in real terms and transfer of the resources i.e. money would no longer be promoting in the housing sector and consumer sectors exporting to over time (Gale, 2011).

Macroeconomic policy has now focused in supporting the domestic demand but fiscal policy should aim in keeping the public debt maintenance on a sustainable path. Given the economic slowdown, the central bank reduced to 5 ¼ percentage point higher than official cash overnight in July 2008 which brings it to 3%. This effect will stimulate fiscal policy about 5% to the GDP over period i.e. 2008 -2010. Therefore, in view of the sharp deterioration of the public finances schedule, monetary policy should be the main instruments used to stimulate more activity. In fact, the improvement in the inflation outlook provides opportunities for further easing. Given the risk of rating of New Zealand as a sovereign borrower and market confidence, heavy financial dependence of the economy against external creditors and ...