News from Australia and New Zealand

The Bank of Australia reduced its benchmark interest rate from 3.25% to 3.00% today. This marks a 525 basis point reduction from the 8.25% rate in June, 2008. Growth in the Australian economy virtually came to a halt in the third quarter of 2008 when GDP increased by 0.08% and disappeared in the fourth quarter when GDP declined by 0.53%. In February of this year, the Australian government announced a A$42 billion (3.5% of GDP) stimulus program of cash disbursements and infrastructure spending.

NZIER (New Zealand Institute of Economic Research) published its quarterly survey of business opinion today. The results are shown as percent balances between those expecting improvement in the economy over next six months and those expecting a deterioration. The overall opinion is based on the opinions of manufacturers, builders, merchants and those engaged in the service industries. In the latest survey, the overall, or economy wide, balance of opinion was -65% meaning that there were 65% more pessimists than optimists. There is a great deal of volatility in the opinions of the participants in the survey but also a clear down ward trend as can be seen in the first chart. In the latest survey, there was a slightly less negative balance for the manufactures and the merchants and a slightly more negative for the builders and those engaged in the service industries.

New Zealand's economy has been weaker than that of Australia as can be seen in the second chart that shows the quarterly changes in real GDP for the two countries. In New Zealand, GDP declined throughout 2008 and for the year as a whole was 1.0% below 2007. In Australia, GDP did not decline until the fourth quarter and for the year 2.1% above 2007. The quarterly changes in real GDP in New Zealand and Australia are shown in the second chart. The third chart shows the official policy interest rates for both countries.New Zealand has, until recently, had a higher benchmark interest rate than Australia, largely as a result of New Zealand's large current account deficit, which has been running between 8 and 9% of GDP for the past few years.