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Alan Bollard - Source: ONE News -
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Reserve Bank Governor Alan Bollard has highlighted the extent of the global economic damage in his opening address at the government's job summit.
Speaking to the delegates gathered in Auckland, Bollard called the current state of world affairs the "biggest destruction of global wealth the world has ever seen".
Although Bollard opened his speech by saying, "We're here from Wellington to help cheer you up," the tone quickly became more sombre as he outlined the problems facing New Zealand's economy.
"We are now seeing very sharp, very quick contraction," Bollard says. "The fourth quarter last year was the biggest contraction we have ever seen."
He says that northern hemisphere banking systems have already lost $2 trillion and governments have embarked on the biggest level of economic stimulus since World War II.
Bollard says the world, including New Zealand, will have to adjust through this period of upheaval.
"In the medium term ... we are going to see a different world, where the western hemisphere is going to have to save more in the household sector, it is going to have to export more."
Bollard says New Zealand does have some particular strengths, despite the doom and gloom being predicted.
"We've had a period of strong growth," he says.
"We do have low unemployment in New Zealand, although it's rising. We have had very contained inflation. We're helped by the fact that we've had flexible markets generally, reasonably flexible labour markets and recently our exchange rate has actually worked for us, for a change.
"It is helping cushion the shocks, it's helping make us more competitive."
NZ won't escape
However, he was also quick to point out that New Zealand will not escape unscathed.
"If we look at many of our trading partners, you will see that they are all going through very significant forecast re-balancing, with big reductions in growth."
Bollard also says the country's reliance on foreign markets for savings and funding is a vulnerability.
He says businesses are suffering a significant negative shock and that they are reacting in a cautious way, by scaling back plans.
But, Bollard does not believe unemployment is going to reach some of the numbers being predicted.
"We believe [unemployment] is going to be much more restrained than it was in the last big downturn in the late 1980s, early 1990s," he says.
He has also encouraged businesses to position themselves for the upturn, when it comes. "Because an upturn in New Zealand can, in the short term, be quite strong."
Bollard says the job summit is a good opportunity for banks to restate the commitment they have to New Zealand's economic health and recovery.
"But banks and governments can only do so much."
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