Global slump 'worse than Depression'

The global market downturn is worse than the Great Depression of the 1930s, according to Auckland investment consultant and superannuation expert Jonathan Eriksen, though New Zealand is well placed.

After the share crash of 1929, the United States Federal Reserve pushed interest rates up and took a tough line on banks, to make sure things would come right quickly.

Now, the market falls have been almost as bad as the 1930s. Internationally, interest rates have been slashed to almost zero and central banks have pumped billions into banks.

"And it is still not working," he said.

It was worse than the 1930s' downturn because the fortunes of the whole world were more closely linked than in the past.

For example, China was no longer growing strongly because United States consumers had cut their purchases of cheap goods.

New Zealand was caught up in the effect because of our links with trading partners.

But New Zealand was "very well placed", he said, because there were no bad "subprime" mortgages here.

Banks were reasonably well capitalised and could lend money. There should be more confidence with the government guarantee for banks and finance companies.

The international efforts to turn the global economy around would not work until households and businesses could borrow again.

"The [overseas] banks are stuffed and it is really creating havoc," he said.

A shortage of capital could see other economies "implode" like Iceland and Zimbabwe, Mr Eriksen said.

That lack of credit also artificially depressed sharemarkets and other investments.

Some investment managers were "sticking to the knitting" and not changing how they invested. Others recognised how severe the downturn was and were adapting to take advantage of bargains.

"There are obviously distressed sellers," he said.

Many New Zealand firms already had a salary and head-count freeze and he advised firms to manage debts as well as possible.

For individuals, Mr Eriksen's advice was to "look after relationships, the job, pay off debt and ride it out".

And New Zealanders are saving more through the KiwiSaver scheme, though Mr Eriksen expected that to slow this year.

KiwiSaver funds jumped more than 50 per cent to $1.8 billion in the September quarter, with ASB taking the market lead from ING, according to latest available figures compiled by Plan For Life research company and Mr Eriksen's firm Eriksen & Associates.

ASB Investments now has almost 19 per cent of the KiwiSaver market by funds under management. That was up from less than 16 per cent in June.