In that case, the question for New Zealand is, can our economy avoid the worst of the fallout?<\/p>\n
This week, The Economy of Everything podcast assesses the risk.<\/p>\n
After two years of stalled recovery, following the US tariff shock and then the oil price spike from the Iran conflict, a major market meltdown would be disastrous for our beleaguered economy.<\/p>\n
\u201cWe\u2019ve had a big warning from the Bank of International Settlements saying that big tech\u2019s AI spending spree risks ending in a prolonged investment bust that could rattle our financial markets and damage the global economy,\u201d Tamsyn Parker said.<\/p>\n
Huge volumes of money have been poured into AI tech companies and satellite launching companies (like SpaceX) on the premise that they are going to be dominant in the global economy in the future, Liam Dann said<\/p>\n
\u201cBut as we saw in the .tech wreck of 2000, timing is everything. Maybe AI is going to change the world, but if it doesn\u2019t really change the productivity and profitability of ordinary companies for another three or four years, that\u2019s plenty of time for a massive stock market meltdown.\u201d<\/p>\n
There were also concerns about the extent to which the major tech companies were all investing and reinvesting in each other, Parker said.<\/p>\n
\u201cAs we\u2019ve seen in past market meltdowns, the more interconnectivity there is, the more likely we see a domino effect.\u201d<\/p>\n
But could New Zealand escape the worst of a Wall Street crash?<\/p>\n
Dann argues that the tech sector doesn\u2019t run as deep into the global economy as banking did during the 2008 global financial crisis.<\/p>\n
\u201cI do think there\u2019s a bubble, there\u2019s going to be a correction, but what I\u2019m wondering about is why it will necessarily destroy the global economy?\u201d he said.<\/p>\n
\u201cIn the GFC, it was the banking sector, and it was the finance sector that was going down, and that was like the floor of everything, the fundamentals.\u201d<\/p>\n
But Parker isn\u2019t convinced, pointing out the New Zealanders now have much greater exposure to the US tech sector via KiwiSaver.<\/p>\n
We have $140 billion invested in KiwiSaver. With roughly 30% in US shares, that meant \u201cany Wall Street wobble\u201d flows through to ordinary New Zealanders, she said.<\/p>\n
\u201cI get that our KiwiSavers will look bad if the stock market collapses, but that is going to happen every 10 years or so,\u201d Dann said.<\/p>\n
\u201cMaybe it would be a good thing if we all paused a bit on AI and if things slowed down a bit?\u201d<\/p>\n
This week, Parker and Dann also discuss Kiwibank\u2019s big call (that the Reserve Bank should keep the Official Cash Rate on hold<\/a> all year), and they take a look at the reasons for the big slump in the Kiwi dollar last month. <\/p>\n Listen to the full episode<\/a> for the full conversation.<\/p>\n