— if anything, they have helped insulate our economy from the global slowdown, helped in part by our shift to an easing bias in early 2019. the uncertainty and confidence channel this leaves the final channel we consider : global uncertainty and confidence. uncertainty is an ever - present part of the outlook for economies and markets. it is more a question of how much uncertainty there is, and whether this starts to impact the decision making and confidence of businesses and consumers. in the past, many global uncertainties have been relatively short - lived — particularly geopolitical tensions that have tended to come and go. many spikes in global uncertainty prior to 2016 ( figure 8 ) tended to be reasonably temporary, eventually reverting back to more normal levels. what has distinguished the last few years is how these measures of global uncertainty have remained elevated for a prolonged period. issues like brexit and us - china trade tensions have persisted for much longer than initially expected, with the uncertainty evolving and changing rather than being fully resolved. 12 figure 8 : global uncertainty source : bloomberg prolonged uncertainty can lead to falling business confidence and investment. 13 we saw this globally in 2019 ( figure 9 ), with measures of business confidence falling in a relatively synchronised way for a number of countries. in new zealand, business confidence has remained relatively low since 2017. in our latest round of visits across the country, businesses cited a number of domestic factors driving subdued confidence, including uncertainty around environmental policy, infrastructure, regulation and access to finance. 14 12 see orr ( 2019 ). 13 see dixit and pindyck ( 1994 ) for a discussion of business investment under uncertainty. while the effects of uncertainty on the economy are well - understood, the strength of these effects can be difficult to measure. the frameworks which exist for measuring the impact of uncertainty are also focused on shortterm uncertainty shocks and not prolonged periods of uncertainty. 14 see the monetary policy statement, november 2019 ( reserve bank of new zealand, 2019a ). so low business confidence in new zealand cannot be entirely attributed to the global environment. however, it is likely to have been a factor that held back domestic business confidence from recovering sooner. the fact that measures of general business confidence in new zealand have sat below measures of firms ’ own activity also reinforces this idea that the global environment is likely to have influenced the general mood of businesses. figure 9 : business confidence in new zealand and other major economies std dev std dev - 1 - 1

zealand credit spreads remained relatively low in 2019, despite heightened global uncertainties. how banks respond to the final decisions of our capital review announced at the end of 2019 remains a key uncertainty, with both risks to the upside and downside. 17 on the currency front, as always, a key uncertainty will be whether the nzd plays its role as a shock absorber for the new zealand economy by responding to changes in economic fundamentals ; or whether it is driven by other factors. • uncertainty channel : brexit and us - china trade tensions were a persistent source of policy uncertainty through 2019. recent developments — including the uk election and us - china phase one trade deal — have provided financial markets with some relief. if there has been genuine pent up demand, the global economy could rebound strongly as firms catch up with capital spending. by contrast, while financial market sentiment has improved, to the extent that brexit and us - china trade policy uncertainties remain far from fully resolved, a sense of caution from businesses may continue for some time yet. in recent months, coronavirus is a human tragedy that has emerged that we will need to monitor, through all three channels. the sars virus in the 2000s provides some potential parallels, particularly through the effects on travel and confidence. 18 15 see the monetary policy handbook ( williams, et al., 2019 ). 16 see disavino ( 2020 ) for a discussion of the recent volatility in oil markets. 17 see capital review decisions ( 2019 ) and the reserve banks ’ s credit conditions survey. 18 see fan ( 2003 ) for the impact of sars - like viruses. looking to the longer term, there are a number of other challenges that we will need to consider. more work will need to be done on these issues to understand their impacts as they evolve. there are uncertainties, for example, about the future openness of international trade and labour markets. there has been a growing geopolitical trend globally towards protectionism and lower migration. rising global protectionism could reduce our export opportunities and lower migration into new zealand could dampen our growth, but might spur investments in domestic productivity. climate change is also likely to impact new zealand ’ s economy in a number of ways in the future. growing environmental regulation of the primary sector, for example, could result in an acceleration in the diversification of our export industries. an ageing population may also affect new zealand ’ s economy, impacting our savings and investment balance.