We recognise that the risks globally are high, and New Zealand is particularly vulnerable to external events. Our economy is quite small - less than a fifth of the size of the Australian economy, and just like Australia, New Zealand is heavily reliant on commodity exports and is very open to financial capital flows.
Commodity price movements in world markets determine the value of our key exports, as well as the price we pay for our imports, particularly those that are fuel-related. Monetary policy moves by foreign central banks may generate unfavourable fluctuations in our exchange rates. However, as Figure 5 demonstrates, the New Zealand economy has responded much more than Australia to downswings in the global economy.