The Implications of a Recession for the Māori Economy

The Recession: Background

  1. The recession has been triggered by rising credit losses on United States residential mortgages during the first half of 2007.1 Examples of the impact of the recession include excessively volatile and generally declining share prices, rising unemployment and business failure.
  2. The international response to the recession has been unprecedented in its scale and scope. Several Governments have injected capital into financial institutions or offered, as is the case in New Zealand, to guarantee banks’ wholesale debt. Central banks have attempted to stabilise the market by reducing interest rates to free up the supply of credit and to stimulate investment and economic growth.2
  3. New Zealand is expected to feel the effects of the recession through:
    • tighter availability and increased costs of credit;
    • a fall in business and consumer confidence;
    • a fall in asset values; and
    • lower demand and prices for exports.3
  4. The Treasury’s “downside” scenario forecast for 2009 includes:
    • a decline in real GDP of 0.2%;
    • a decline in residential investment of 22%;
    • a decline in exports of goods and services of 1.0%; and
    • an increase in the unemployment rate of 5%.4
  5. This paper will provide a snapshot of and highlight the key risks to the Māori economy in order to inform further work to mitigate these risks. It will also outline the key drivers for future change and how some Māori businesses may be placed to take advantage of these trends.

 

1 The global financial crisis and its transmission to New Zealand, Reserve Bank of New Zealand, December 2008.
2 Ibid.
3 Budget Economic and Fiscal Update, The Treasury, 28 May 2008
4 Economic and Fiscal Forecasts December 2008, Hon Bill English, Minister of Finance, 18 December 2008.

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