The Effects of the Recession on the Economy of New Zealand - Essay Example

Download file to see previous pages It is important to note that a recession when it occurs, does not just affect the domestic industry or economy; rather it has implications that are global, as Allen (2001) relates. According to him, the advent of globalization has led the countries to come close together in terms of international trade. The consequence of this is that the economy of one country has a large and direct effect on the economy of another. Because of international trade, as mentioned above, a global crisis could be caused. An example of a global crisis would be the sub prime crisis that occurred in the US in 2008 as Walden (2008) relates. In accordance with Shankar (2008), the subprime lending fell in the US which meant that the banks and the financial institutions in the US went bankrupt. Because of the uncertainty that was later caused due to the bankruptcy, the investors lost confidence in the US stock markets. The banks were also not able to cooperate with each other and so a ‘liquidity crisis’ was the result. Since the US is a key player in international trade, the bankruptcy at home had implications on rest of the countries too as they had relied on the US markets for profits and hence a global crisis was prevalent.
The above-mentioned example shows that a global crisis is likely to affect the countries worldwide. The same has been observed recently according to a study carried out by LaBonte and Purcell(2009). Their study shows that the recent global crisis has been characterized by insolvency, bankruptcy, a credit crisis, inflation, and unemployment. The recession has affected New Zealand too.
A report by the New Zealand Herald (2009) suggests that the recession that has been prevalent in the world for the past four to five years is the worst ever recorded since the 1930s, a time when the economies globally were suffering from the disastrous events that were caused by the First World War. ...Download file to see next pagesRead More