##ught with uncertainties. 3. new zealand was assisted by significant stimulus something that has marked out this global crisis as compared with the 1930 ’ s great depression is that we have learned the importance of government policy stimulus being applied early, forcefully and consistently. while still too early to be definitive, economists generally see government stimulatory policies as having been quite successful in stemming the recession. of course long - term outcomes cannot be judged until we see how successful countries are at exiting their stimulus without long - term costs. new zealand like australia has been fortunate in several respects : the crisis did not hit deep, the financial sector stayed broadly sound, and recovery is being helped by strong commodity markets. that has meant we did not have to stimulate the new zealand economy by anything like the levels in europe and the us. nevertheless we have just been through the biggest co - ordinated stimulatory programme involving monetary policy, fiscal policy, liquidity assistance and government guarantees since world war ii. these look to have been relatively effective in their timing and design, and are not expected to have left big public costs behind. the graph of gdp shows that the new zealand economy went in to recession in q1 2008, although this was initially triggered by an unusually - severe drought, rather than the global financial crisis. the figure also summarises the main stimulus measures that were put in place, together with another important market insulator, the exchange rate reaction during the crisis. it shows that many of the measures were implemented fairly quickly. the economy contracted 3. 4 per cent over the period, reaching a trough around march 2009, and back to fragile growth later in the year. by the time we received the last quarter 2009 gdp data we were in a position to say that recovery was firming and we would need to exit much of the stimulus. most but not all of the special liquidity measures have now been terminated, leaving conventional monetary policy to guide the stages of recovery. note : fiscal policy stimulus defined as significant increase in fiscal impulse measured, new zealand treasury in half - year economic and fiscal update, december 2009. exchange rate depreciation is the major fall in the new zealand twi from march 2008 to march 2009. very stimulative monetary policy refers to the major reduction in ocr from 8. 25 per cent to 2. 5 per cent followed by a conditional undertaking to hold the rate low. retail deposit guarantee refers to the original scheme, terminating in december 2011. the extended scheme

and ourselves foresee that the official cash rate will not need to rise as far in this cycle as it did in the last one. there are a number of reasons for this, none of them individually definitive, but all pointing in the same direction : in brief the financial markets have already effectively tightened conditions as a result of more costly funding ; the new zealand private sector is reducing debt and cautious about new borrowing ; most borrowers are on shorter duration mortgages and the steeper yield curve does not much encourage lengthening this ; increasing policy rates in the shadow of australia should be easier than being a world leader ; and, finally, we believe there may be alternative ways of influencing over - exuberant bank lending through macrofinancial policies. our economic recovery is out of its first stage of intense fragility, and into a new phase of rebalancing growth. but a final caution : recovery so far has been full of surprises. there will be more to come!