HERALD WEEKLY ISSUE 600: 25 January 2012

Insert Text HereExpecting the recession, be prepared
It’s been all over the news these past few days. The monetary problems in Europe plaguing the Euro currency of the European Union, is spreading and in time a recession is expected to affect Australia.
According to ABC TV News, there is increasing concern over looming job losses (perhaps around 3,000 in New South Wales) in the car manufacturing industry alone due to the strong Aussie dollar. The Australian government is also worried about an expected rise in unemployment from around 5 per cent to 6 per cent.
While Australian minerals are still in demand from China, this demand is expected to ease off as China is affected by lower investments from Europe which may see its annual rate of growth dip to single digits.
Australia is New Zealand’s biggest trading partner so what affects Australia also has some impact on NZ.
Right now NZ is climbing out of a huge debt made bigger by the Christchurch earthquakes. Home owners will shortly be hit by big rises in insurance costs which will impact on household’s discretionary incomes.
With NZ and Australia being the Cook Islands biggest market for tourists, some impact on our tourism industry can be expected. Tourist numbers from Europe are already dropping.
With tourism being the Cook Islands major money earner, the outlook is beginning to look less bright than predicted last year.
However, unlike the recession in 2009, our government this time round is not going to get caught with its pants down.
The Half Yearly Economic and Fiscal Outlook issued in December 2011 in conjunction with the Budget Policy Statement, warned of a possible downturn and predicted how a shortfall would impact on government revenue.
Government also signaled it would be putting any surplus into a reserve fund.
All this is fine for government but what about ordinary people? How will a recession thousands of miles away in Europe, affect ordinary people in the Cook Islands?
For a start, it’s going to be harder to get a loan to build a home or start a business or prop up a business. That’s because banks are going to find it hard to source funds themselves and interest rates to banks seeking to borrow from other banks or from banks overseas, will be high. The banks in the Cook Islands must borrow from overseas because the amount loaned out exceeds deposits in banks. Cook Islanders do not save enough.
With a slow down in construction, tourism and tourism related services, less cash will be flowing in the community. Less will be spent at shops and people will be more careful with expenditure.
There could be a rise in the cost of goods as the cost of imports, fuel and transportation increases. People may buy less, putting pressure on retailers and wholesalers to drop prices and accept lower profit margins. This will affect how much VAT government gets from sales. Lower profit margins mean less money to reinvest in businesses to make them grow and be more productive.
What can government do? If government is able to source the funds, it could put more money into people’s hands by creating more jobs. One obvious area is the construction industry.
Government can encourage small enterprise start ups in agriculture and fishing by granting cheap loans. This will in time reduce imports of foodstuffs which can be grown locally. Up to $30 million could be diverted from imports of overseas vegetables and fruits, to local producers.
Government can stimulate production by making it possible through cheap loans for employers to hire more labour.
Ordinary people can pay off their debts or reduce debts or be careful with spending and save more.
Vendors at the Market and selling from stalls may have already noticed a downturn in sales. -Charles Pitt

Herald Issue 554 09 March
- Norm exposes Trio of Doom
- Briefs from PM’s media conference Tuesday
- Tourism Industry ponders $5 million draft strategy
- Norman George resigns from Cook Islands Party
- Letter of Resignation from CIP
- Norman selfish says Prime Minister

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