World Cup win means markets boom?

By Michael Wilson

At last we’ve won the Webb Ellis so sit back and watch the economy and the markets boom. That’s what happened in 1987 isn’t it? Well actually, no. Quite the opposite in fact. We won the Cup on June 20 1987. At the time we were in the midst of a massive share market boom when every man and his canine owned a stake in Brieley Investments, Chase Corporation or Equiticorp. Shares may have climbed a touch more post June 20 but four months later on October 21st, our share market collapsed, losing twenty five per cent in one day. It was part of a worldwide “correction” which saw our market and economy plunge for several years. Sadly, the RWC victory accounted for nought. It wasn’t until late 1991 that our economy started to revive.

But then the RWC is just a sporting event so why should we think it can spark an economic boom? The reality is offshore events are far more significant for us. We may feel better having ended the World Cup drought but other than the sales of bubbly rising for a few days it’s not going to have any obvious effect on our economy. General confidence should get a boost but it tends to be ephemeral so come next week it may well seem like a distant dream as we tackle elections, shipping disasters and post quake malaise.

So what is likely to give our economy a boost?

Well the Europeans are doing their best to sort their debts out and give world markets some hope that a Euro Zone crisis can be averted. Despite all the anxiety Europe is producing, world share markets have been rising strongly in anticipation of a solution. Yet another “crucial” meeting will be held this week. Thursday our time there will be an EU summit which is supposed to produce concrete proposals for recapitalizing European banks and provide a massive relief fund to bail out economies such as Italy and Spain, as well as the already bankrupt Greece. If they really do produce results at this summit meeting then world share markets should rise strongly. If they don’t come up with a concrete and credible solution then we’ll be back to Gloomsville and markets will crash. We have to hope they do sort things out as a negative outcome will result in a weakening of commodity prices as markets expect global economic growth to slip. New Zealand’s economy relies so much on export commodities we need these debt problems sorted.

The other important offshore stimulus for us is China. If this economic giant can keep growing at 9 percent plus then our commodity prices are likely to stay strong for some years. It is still unclear how much impact the debt problems of Europe and the US are having on China. Its GDP growth rate has slipped from 10 percent to just over 9 percent. Now 9 percent sounds pretty good to us, and if that sort of growth rate can be maintained then our commodity prices should stay relatively high. The worry is that their growth rate will taper off to 8 percent or less, a figure we would be perfectly happy with but one which signals a slow down for China. I think its more likely that China will keep ticking over strongly and that should provide support for the world economy and for little old NZ.

And if we could get the Chinese to start playing rugby on a major scale, then perhaps our winning the RWC would mean just that little bit more. Imagine if Chinese clubs started buying our players and coaches. And the meat and dairy that makes our heroes so strong and successful. Now that would spark an economic boom!

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