New Zealand Economy on Verge of Collapse? London-Based Analysts Likens Country to Ireland
By Reissa Su | February 18, 2014 1:30 PM EST
Analysts based in London have likened New Zealand to Ireland in its state of pre-global financial crisis with an economy on the brink of collapse. In a Bloomberg report, SLJ Macro Partners Stephen Jen and colleague Faith Yimazn said it was only a matter of time before the New Zealand dollar will decline. Both analysts remarked that the reality is "quite different" despite the Kiwi dollar's strong performance as of late.
An employee counts U.S. dollar banknotes as yuan banknotes are seen at a branch of the Industrial and Commercial Bank of China in Huaibei, Anhui province in this May 25, 2010 file photo.
The analysts said New Zealand has many structural weaknesses which are similar to southern European and southern emerging market economies. Both said the New Zealand dollar may be overvalued by 20 per cent.
The analysts told Bloomberg they were not convinced with the Kiwi despite New Zealand's growing economy, high-yielding currency and high terms of trade. They said New Zealand reminded them of European countries and emerging markets before the crisis hit them. According to Mr Jen and Mr Yimazn, New Zealand has a growth model based on debt and credit, current account deficits and low savings rates.
Ireland enjoyed a strong economy before 2007 until it became victim of the debt crisis. The European country requested a 67.5 billion bailout in November 2010 when its banks were on the verge of collapse.
However, ASB economist Christ Tennant-Brown said the major drivers of New Zealand's strong economic growth were not supported by debt. Reports have previously said the Canterbury rebuild will be the key driver to the country's growth in 2014. Mr Tennant-Brown said he doesn't see a risk in the New Zealand becoming the pre-crisis Ireland.
Westpac Bank economist Imre Speizer remarked Ireland is different from New Zealand since the Kiwi dollar was free-floated and the banking sector remained safe from the growing property market.
Speizer expected the New Zealand dollar to remain strong against the U.S. dollar. He said the Kiwi may possibly peak at U.S. 86 cents but it will decline against the U.S. dollar by 2015 as the American economy gets going.
The New Zealand dollar closed at U.S. 83.75 cents as of 5pm on Feb 17.
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