Keep South Canterbury in perspective: NZIER chief economist

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The biggest danger from the South Canterbury Finance receivership is overblowing its importance to the wider economy, sparking an unnecessary impact on consumer and business confidence, says the New Zealand Institute of Economic Research's principal economist, Shamubeel Eaqub.

Tuesday, August 31st 2010, 4:33PM

by BusinessWire

"Farm debt in New Zealand is $47 billion, on a total farming business of around $120 billion," he said. South Canterbury's liabilities, at $1.6 billion, were equivalent to just 3.4% of total farm lending, and just 1.3% of national farm assets.

By comparison, SCF's $1.6 billion in total liabilities - and a likely net Crown exposure of perhaps $700 million - was less of an economic shock than the high profile of the issue might imply, Eaqub said.

"We need to keep this in context, relative to the stock of debt. For the local economy, particularly around Canterbury and Timaru, this will have some big financial and confidence impacts.

"But it's the confidence aspect that's important, and the potential loss of confidence through to investing in general that I worry about. I don't think there needs to be," Eaqub said.

"Our banks are pretty strong, they are well rated, and have plenty of cash. Depositors (in SCF) are guaranteed, so there won't be a spending shock."

Eaqub cannot be accused of trying to talk the situation up. NZIER today published a gloomy outlook for the New Zealand economy over at least the next year. The only bright spots are that unemployment rates should remain stable and interest rates will rise more slowly, as the pace of both the local and global economic recoveries slow

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