New Zealand’s financial system is in a strong position and should be able to support households and businesses even if the economy slows down, Reserve Bank Governor Anna Breman said.
“The global risk environment has worsened over the past six months, as conflict in the Middle East threatens world energy supply,” Breman said in publishing the Financial Stability Report on Wednesday.
“However, New Zealand’s financial system is resilient and well positioned to support households and businesses even if economic conditions soften.”
The conflict in the Middle East, along with the closure of the Strait of Hormuz, has caused major disruption to global energy markets. It has also added further strain to already tense geopolitical and trade conditions.
The longer the conflict continues, the more it threatens global financial stability. As a small, open economy, New Zealand is already feeling noticeable economic impacts.
“Domestically, we have seen the immediate impacts of the conflict in rising fuel costs for households and businesses,” Breman said.
“High diesel prices are having the most impact on the transport and logistics sectors, as well as primary industries including forestry and fishing. While economic growth had been recovering prior to the conflict, we are now likely to see a somewhat slower recovery, affecting job growth and debt servicing.”
She said banks are well capitalised and have strong funding buffers, which puts them in a good position to support customers who may be under financial pressure and to manage strain in offshore funding markets. Stress test results also show that banks are able to withstand major economic shocks, including geopolitical events such as the conflict in the Middle East.
“For insurers in New Zealand, we assess the direct impacts of the Middle East conflict to be limited.”
“Health insurers have needed to raise premiums and adjust policies following several years of high claims costs, and this has improved solvency margins in the sector. This year we are progressing a stress test of life and health insurers.”
This edition of the Financial Stability Report also looks at two special topics related to financial stability. The first focuses on smaller businesses and their access to credit, noting that they continue to face relatively high borrowing costs. It also points to opportunities to improve pricing transparency so firms can more easily assess whether they’re getting a fair deal.
The second topic looks at global fiscal sustainability, highlighting increasing public debt pressures in major advanced economies and the potential risks these could create for global financial stability, including possible spillovers to New Zealand.
The report also includes an overview of general insurance coverage in New Zealand and how it relates to financial stability.