5.5 Comparative OECD countries
Subject to the caveats advanced in earlier sections, the growth impacts of a crisis are calibrated using the experience of comparable OECD countries. Prior to the crisis, some macro variables in Ireland and Spain looked quite similar to New Zealand (refer Table 6). The macroeconomic situation before the crisis in both countries was characterised by low government debt partly offset by a large and growing negative net international investment position (NIIP).
| New Zealand | Ireland | Spain | |
|---|---|---|---|
| Net govt debt | -13% | -0.3% | +19% |
| Gross govt debt | 25% | 28% | 42% |
| Net international investment position | -80% | -71% | -80% |
Source: OECD Outlook 87
In all cases, heavy borrowing from abroad was intermediated through prominent financial institutions. A large proportion of this debt made its way, through mortgages, onto household balance sheets. Asset prices rose through the boom and declined rapidly when the crisis hit both Ireland and Spain. Falling asset prices and a spike in private sector leverage contributed to a sharp reduction in spending and investment. In practice, New Zealand fared much better than either Spain or Ireland (refer Figure 7). Low government debt, a growing exposure to fast growing export markets, sound financial institutions, and the fact that our imbalances did not start to unwind in a disorderly fashion favoured New Zealand. This, however, does not exclude New Zealand from ever facing a crisis, especially if imbalances continue to grow.
- Figure 7: Comparative OECD growth rates
- Source: OECD Outlook 87
To illustrate how a crisis could look in New Zealand, growth is calibrated on the 2008-2011 growth rates for Ireland and Spain published in the OECD Economic Outlook (#87). These growth rates are projected out from New Zealand's 2010/11 nominal GDP (refer Table 7). A more moderate scenario based on the average OECD growth experience over the same period has also been included (refer Table 7). Beyond a period of five years, growth rates return to trend (4% nominal growth) for the remainder of the 15 year projection period.
| 09/10 | 10/11 | 11/12 | 12/13 | 13/14 | |
|---|---|---|---|---|---|
| Ireland | 7.3% | -4.2% | -10.0% | -3.2% | 3.2% |
| Spain | 7.0% | 3.4% | -3.4% | -0.1% | 1.2% |
| U.K | 5.5% | 3.5% | -3.6% | 3.7% | 3.7% |
| OECD average | 7.1% | 4.7% | -2.2% | 4.2% | 4.6% |
| New Zealand (HYEFU) | 7.6% | 5.8% | 4.7% | 5.2% |
Source: Based on OECD & Treasury estimates
