New Zealand is a small boat in a storm, but a fairly sturdy one. We have ridden out the past few tempests in the world economy without being swamped and that offers confidence we can survive this one. It is not yet clear how serious slowing growth in China may be. Stock markets have reacted as stock markets do to any sign of uncertainty. But they are their ships' casinos, banging and clattering about whenever the sea turns rough.
Down on the decks where people work and shop, eat and are entertained, we are keeping an eye on the bridge and can see no sign of panic. Business leaders and the Government are holding their nerve. There is ballast in the balance sheets, though not nearly as much as there was in the public accounts eight years ago when a property slump brought recession then the global financial crisis.
Property prices in New Zealand rebounded by 2010, and for the past five years they have been rising at a rate that now presents the main risk to our ability to ride out this turbulence.
Rapid house price inflation makes it difficult for the Reserve Bank to bring interest rates down in line with those of most other currencies. Back in May, the bank announced an unusually selective loan-to-value ratio for residential investment property in Auckland. At the same time the Government announced a "bright-line" test for taxing capital gains on investment homes sold within two years of purchase. Both restraints were to begin in October, but last Friday the bank postponed the loan-to-value change to November.
