to the rescue. of course this has significant imbalances for the new zealand outlook. demand from western countries is gradually improving, but still not very encouraging. the sad us housing story is bad for our wood exports, the uk fiscal retrenchment is hurting our uk tourist numbers and the fragile japanese recovery restrains our food exports. our own internal rebalancing is progressing, but very slowly. substantial fiscal stimulus helped cushion the economy over the past few years. the fiscal deficit will need to be closed and private demand take over public sector support. moreover, it appears that some of the fiscal deficit is structural and unwinding this support will subtract from growth for a number of years, with our housing market remaining weak, consumption impaired, balance sheets fragile and businesses remaining cautious. private demand is still impaired. what is yet to come however at the same time the strong growth in east asia and australia emerging markets has been very beneficial. these markets were much less affected by the financial crisis, have themselves enjoyed strong export prices, and are now being buoyed by growing domestic demand. russia, brazil, energy exporters, south africa and the southern american countries are also in this group. they are developing a much stronger geopolitical voice for the g - 20. the chinese and india stories exemplify this – not by any means a simple picture, but here are two economies with continued strong export demand, government building of infrastructure, and evolving domestic demand. these economies have strong connections to regional growth that will benefit new zealand indirectly over and above our direct trade exposure. other medium term implications look particularly interesting for new zealand. post - war evidence shows that as emerging markets develop significant middle classes, there is a commensurate increase in demand for protein, increasingly animal - based. that has been the pattern across a number of countries with different cultures in different geographies. many of these countries are limited in expanding their own food production, by lack of suitable land, lack of water, increasing climatic volatility, and high oil prices. a recent nomura report 2 argues that real food prices will need to rise significantly. new zealand is not a huge food producer ( not being among the top half dozen producers of any of the world ’ s key food product groups ). however our food exports ( as a % of gdp ) top the world, and we are the best placed in competitive terms in nomura ’ s food vulnerability index. food trade is volatile in

alan bollard : the recovery, the aftershock and the economic future speech by mr alan bollard, governor of the reserve bank of new zealand, at the deloitte tax conference, auckland, 19 november 2010. * * * the crisis the global financial crisis has been the major economic event of our time. as we continue through the recovery phase and encounter unexpected aftershocks it is timely to reconsider what this means for new zealand. the global financial crisis was not as harmful as the 1930s depression, but from that event we learnt that recovery to economic normality can be a slow, fragile, uncertain process with temporary set - backs and aftershocks. the 2008 global financial crisis has been different from the 1930s : it was widespread and internationally synchronised, it hit deep, but not long. it originated from the banking sector, spread virally across a number of sectors, hit the housing sector particularly hard, and was ultimately arrested by active government stimulus. the global financial crisis finally troughed in mid - 2009 in an internationally - synchronised way. there was general relief as the macroeconomic data became more reassuring, and the very large contractions in economic activity ceased. at that stage our focus turned to what the recovery would look like. the history of major financial crises shows a consistent pattern emerges : a long period of building up stresses ( averaging a decade ), a rapid unwinding, then an equally long period of gradual recovery 1. carmen m. reinhart & reinhart, vincent r. ( 2010 ) “ after the fall ”, jackson hole symposium. following regular post - war business downturns that were not associated with financial and banking crises, economies have traditionally recovered speedily and strongly. not this time in the west. instead we have seen businesses very cautious about reinvestment, with scarcely any credit growth. in the us, households have been traumatised by the twin fear of losing their jobs and their houses. we have observed two particular aftershocks to the crisis, neither of which was expected, as countries struggle to rebalance in two distinct ways. external rebalancing we are seeing an external “ aftershock ” playing out across the globe right at the moment with big movements in exchange rates to cross - rate extremes not seen for decades. the need to rebalance externally has been driven by the record build - up of international imbalances that created the pre - conditions for the global financial crisis.