Global Warning.............

This week, the publication of two very telling charts suggests that we are heading for troubled economic waters. The chart on the right indicates the collapse of global growth based on the experience of Exporters in the US.  As you can see, this suggests that we're facing more difficulties with the international economy, driven largely by the possibility (or probability) of the U.S. heading for recession next year.

The second chart below records the Shanghai Composite index and adds to the view that a global recession is more than just a possibility. The dip below 2000 was a 3.5 year low for the Shanghai Composite and may well confirm a slowing of the Chinese economy - not good news for the Asia-Pacific Region generally, nor for New Zealand in particular.

Extending the equation to consider Europe doesn't change this prospect - indeed, quite the opposite. The ongoing troubles in Europe point to the global economic scenario getting tougher rather than easier in the near and middle term.

While the underlying strengths of the U.S. and Chinese economies may weather the storm, this European situation appears to be particularly tenuous, with talk of Greece leaving the Eurozone which will inevitably  lead to contemplation of a break-up of the Eurozone and an abandonment of the Euro as a currency altogether.

This would be an event of some significance. Even a cursory glance at the map of Europe confirms that the currency has acted as a catalyst for economic exchange and trade, and its demise must create complications for ongoing interaction among member states.

English: map of Europe; blue: Eurozone, green:...

Such global developments will inevitably impact on NZ and our near neighbours, and we best be prepared to face further turbulence and uncertainty.

To some extent, the initial impact of the G.F.C. by-passed New Zealand and Australia. As NZ's largest trading partner, Australia's vast mineral wealth provided a defence against the immediate global downturn. However, it matters not how much mineral wealth you may possess - if your clients are in economic strife and can't afford to buy from you, there simply has to be a knock-on effect eventually. Certainly, anecdotal evidence suggests that local sentiment currently doubts the accuracy of the "Lucky Country" tag afforded to our neighbours in the past.

What impacts Australia will inevitably have an effect on New Zealand, and while there's a natural Kiwi resilience in the face of adversity, it's my guess that we'd best batten down the hatches, start hoarding the Vegemite, stock up with some Sav Blanc and/or Steinies, and hope that the storm passes.

Cheers (somewhat muted)

The Laird of Albany

InternationalDavid Whyte