OECD: exchange rate volatility hurts NZ trade

OECD: exchange rate volatility hurts NZ trade – 28 March

The OECD has released a report demonstrating that the exchange rate has greater impact on the trade flows of small economies. This confirms what is clearly evident to those working in the real economy: New Zealand, a small, trade exposed economy, must have a policy focus on exchange rate stability say the New Zealand Manufacturers and Exporters Association (NZMEA).

The OECD report noted that:
“price and exchange rate impacts on exporters are particularly important in smaller economies since in order to grow, firms must quickly turn to export markets due to the reduced size of the domestic market; and because firms in small countries must compete in third markets with firms from larger countries that may benefit from greater economies of scale.”

NZMEA Chief Executive John Walley says, “This is yet further evidence that the so-called best practice monetary policy used in New Zealand is actually detrimental to our own interests.”

“If you look at some of the more successful small economies from around the world, they take exchange rate levels and volatility very seriously. Switzerland and Singapore are two that immediately come to mind.”

“The OECD report also mentioned a less diversified export mix and smaller average firm size as reasons exchange rates have bigger impacts on small countries. A narrow export mix means there is less capacity to adjust to price signals generated by the exchange rate and smaller firms are less able to hedge against volatility.”

“Add to this the absence of any automatic stabilisation for added value exports and it should be no surprise that our economy is regressing to commodities.”

“The exchange rate must become a policy focus for the Government and its officials. Policies focused on a balanced current account would be a good place to start.”
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