Late 2000s recession in Australasia
Encyclopedia
The business community in Australia and New Zealand had been affected by global financial crisis for a number of reasons. Although regional banks generally have good liquidity requirements, the commercial wing of the industry was overexposed to sovereign wealth fund
s and governments made few provisions for the drop off in trade with China. Additionally, many institutions of the New Zealand economy
are regulated by Australian authorities, as cross-border banking has been allowed to gather pace since the late 1980s.
In July 2008, the National Australia Bank
cut a A$850 million bond sale by two thirds following investor flight and opted for a 100 percent write-off on a clutch of "senior strips" of AAA-rated collateralized debt obligations (CDO) worth A$900 million. Banks began avoiding lending for land, to focus on refinancing existing clients, and small developers held on to their properties as second-tier loan costs (up to $15 million) were, reportedly, unaffordable since February. Housing prices consequently fell in the second quarter for the first time in about three years, restricting consumer confidence to its lowest level in 16-years. High profile casualties of the credit crunch include Allco Finance
, MFS, ABC Learning
, Babcock & Brown and Centro
while numerous other institutions have lost a significant part of their value.
Sources such as the IMF and the Reserve Bank of Australia predict Australia is well positioned to weather the crisis with minimal disruption, sustaining more than 2% GDP growth in 2009 (while many Western nations go into recession). The World Economic Forum recently ranked Australia's banking system the fourth best in the world, while the Australian dollar's 30% drop is seen as a boon for trade, shielding from the crisis, and for helping to slow growth and consumption.
Some analysts have predicted the continuing decline of trade in 2009 could put the economy into recession for the first time in 17 years. Unemployment will increase because of slower growth, declining profits and government revenues.
The economy emerged from recession in mid-2009, with the second-quarter GDP report showing the economy grew by 0.1 per cent on the March quarter.
Sovereign wealth fund
A sovereign wealth fund is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally. Some of them have grabbed attention making bad investments in several Wall Street financial...
s and governments made few provisions for the drop off in trade with China. Additionally, many institutions of the New Zealand economy
Economy of New Zealand
New Zealand has a market economy which is greatly dependent on international trade, mainly with Australia, the European Union, the United States, China, and Japan. It has only small manufacturing and high-tech sectors, being strongly focused on tourism and primary industries like agriculture...
are regulated by Australian authorities, as cross-border banking has been allowed to gather pace since the late 1980s.
Australia
There has been a credit market crisis in the Australian economy since early 2008. The taxation system is currently being reviewed in order to reduce its complexity and increase the tax concessions made for investment income, although it remains uncertain what — if any — financial products will be excluded in the proposed changes.In July 2008, the National Australia Bank
National Australia Bank
National Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...
cut a A$850 million bond sale by two thirds following investor flight and opted for a 100 percent write-off on a clutch of "senior strips" of AAA-rated collateralized debt obligations (CDO) worth A$900 million. Banks began avoiding lending for land, to focus on refinancing existing clients, and small developers held on to their properties as second-tier loan costs (up to $15 million) were, reportedly, unaffordable since February. Housing prices consequently fell in the second quarter for the first time in about three years, restricting consumer confidence to its lowest level in 16-years. High profile casualties of the credit crunch include Allco Finance
Allco Finance Group
Allco Financial Group was a fully integrated global financial services business, listed on the Australian Stock Exchange and head-quartered in Sydney, Australia. Major services provided are structured asset finance, funds management and debt and equity funding. Allco has over A$4.3 billion in...
, MFS, ABC Learning
ABC Learning
ABC Learning is an Australian company that was the world's largest provider of Early Childhood Education services. It is listed on the Australian Securities Exchange with its market capitalisation reaching A$2.5 billion in March 2006...
, Babcock & Brown and Centro
Centro Properties Group
Centro Properties Group, commonly known as 'Centro', is an Australian company which provides retail property ownership and management services. It is a listed company with securities traded on the Australian Securities Exchange. The multinational company owns and operates shopping centres in...
while numerous other institutions have lost a significant part of their value.
Sources such as the IMF and the Reserve Bank of Australia predict Australia is well positioned to weather the crisis with minimal disruption, sustaining more than 2% GDP growth in 2009 (while many Western nations go into recession). The World Economic Forum recently ranked Australia's banking system the fourth best in the world, while the Australian dollar's 30% drop is seen as a boon for trade, shielding from the crisis, and for helping to slow growth and consumption.
Some analysts have predicted the continuing decline of trade in 2009 could put the economy into recession for the first time in 17 years. Unemployment will increase because of slower growth, declining profits and government revenues.
New Zealand
New Zealand Institute of Economic Research's quarterly survey showing New Zealand's economy contracted 0.3 percent in the first quarter of 2008 and Treasury figures suggested the economy also contracted in the June quarter putting New Zealand in a technical recession. The Treasury says the economy could recover in the second half of the year under the impact of high dairy prices boosting farmer incomes and cuts to personal tax rates, which come into effect on Oct. 1. About 23 financial companies in New Zealand have filed for bankruptcy in a year. Housing starts in New Zealand fell 20 percent in June, the lowest levels since 1986. Excluding apartments, approvals dropped 13 percent from May. Approvals in the year ended June fell 12 percent from a year earlier. Second-quarter approvals dropped 19 percent. The figures suggest a decrease in construction and economic growth. House sales fell 42 percent in June from a year earlier. The New Zealand Treasury concluded that the country's economy had contracted for a second quarter based on economic indicators, putting New Zealand in a recession. New Zealand's central bank cut rates by half a percent arguing the economy was in recession. New Zealand's GDP declined by 0.2 percent in the second quarter putting the country in its first recession in a decade.The economy emerged from recession in mid-2009, with the second-quarter GDP report showing the economy grew by 0.1 per cent on the March quarter.