low for temporary reasons rather than reflecting any long - term structural shift in demand or productivity growth that would deter consumers and investors from responding to lower policy - induced interest rates. strong forms of the secular stagnation hypothesis would argue that an interest rate adjustment is ineffective in inducing an inter - temporal shift in demand when consumers and investors anticipate, let alone experience, near - zero long - run interest rates. a weaker form would acknowledge that the neutral real interest rate has fallen transitorily, requiring a lower policy rate than previously - a complication for economies close to or at the zero lower bound. in new zealand, there are a couple of reasons why the secular stagnation hypothesis appears unsupported. potential output growth has substantially recovered from cyclical lows and has not inhibited actual gdp growth to the extent that it has in many other advanced economies. in saying that, potential output growth has still been slower in the current cycle relative to the previous two ( figure 12 ), consistent with some reduction in the neutral interest rate. this is largely due to a much weaker contribution from total factor productivity and growth in the capital stock relative to the past two cycles. much of the improvement in potential gdp in the current cycle is accounted for by the growth in labour supply owing to greater labour force participation and high net immigration. new zealand is not currently exhibiting signs of a demographic slowdown that is besetting many advanced economies ( population growth in the year to june 2016 was 2. 1 percent ). figure 12 : contribution to annual potential gdp growth in recent business cycles % % 4. 5 4. 5 4. 0 current cycle 1998 - 07 cycle 1991 - 97 cycle 4. 0 3. 5 3. 5 3. 0 3. 0 total factor productivity 2. 5 2. 5 2. 0 2. 0 1. 5 labour 1. 0 1. 0 capital 0. 5 0. 0 1. 5 0. 5 0. 0 source : rbnz. secondly, there is no strong evidence to suggest that aggregate demand growth is less responsive to interest rate adjustments. 28 the stimulus from low interest rates appears to be supporting house prices and construction sector activity via residential investment in line with previous cycles ( even after accounting for the canterbury earthquake reconstruction ). 29 construction sector activity continues to have a strong influence on the output gap. although consumption growth per capita has been weaker than projected since 2013, this is partly explained by exaggerated expectations rooted in the housing cycle of the early 2000s.

are many niches in the financial sector, and different providers ( including non - bank financial institutions ) will seek to compete on the basis of their perceived business model advantages ; however, increasing digitisation appears common to them all. as banks determine new business models, increased internal investment will be needed in technology, customer management and risk management. managing customer, investor and regulator expectations in the face of persistent structural changes and an evolving risk environment will require strong organisational leadership and governance. cyber risk the flip side of digital strategies is that the financial system has increased exposure to cyber risk due to ever - evolving cyber threats. cyber risk imposes costs, not only for financial institutions, but also for their customers and the financial system as a whole. we estimate the average cost of a cyber - incident to be around $ 104m for the banking sector and $ 38m for the insurance industry. to put this in perspective, it is the equivalent of 2 - 3 percent of annual profits for the banking and insurance sectors. this may not seem significant at first glance, but cyber risk is a typical tail risk. we estimate that there is a 5 percent chance in any given year that the cost of a cyber - incident could exceed $ 2b, which is equivalent to one - third of the banking industry ’ s annual profit. these costs include both direct costs from financial loss and indirect costs such as reputational damage and the opportunity cost from foregoing more productive investment. therefore, there is a great deal of common interest between the reserve bank and industry to promote cyber resilience. as a first step, we have developed guidance on cyber resilience for all our regulated entities. consultation for guidance was initially planned for march but will now be released for public consultation in october. the reserve bank is also working closely with other relevant government agencies such as the gcsb, cert nz and the fma to promote information gathering and sharing regarding cyber resilience. fintech the march of technological innovation is relentless, and disruptive technologies and innovative financial service providers will challenge banks ’ business models at an everaccelerating pace. ‘ fintech ’ is the buzz term that encompasses a broad range of technologies that enable households and businesses to manage their finances, and includes open banking, real - time payments and digital currencies. new zealand has a long tradition of pioneering technology companies, and has a strong pipeline of promising fintechs with revenue exceeding $ 1. 1bn. 8 fintech present both risks