The downgrade came hot on the heels of a similar move by Fitch Ratings, which cut its rating for New Zealand on Thursday, also singling out the country’s high foreign debt levels as a cause for concern.
Despite the downgrades, New Zealand’s local and foreign currency ratings remain near the top end of both agencies’ scales. The country’s financial system is sound, the agencies said, and New Zealand continues to enjoy plenty of monetary and fiscal flexibility: public debt, unlike in many other developed economies, remains modest.
Debt levels in the household and agriculture sectors, by contrast, are high, while the country’s dependence on commodity income and an aging population poses challenges for the future.
Still, the downgrade highlighted that the turmoil sweeping the globe — prompted by worries over the slow pace of growth in the United States and doubts about the ability of several European countries to meet their debt obligations — is affecting economies even as far afield as New Zealand.
Stock markets in the Asia-Pacific region have been dragged down along with those in the rest of the world, as investors have largely ignored developing Asia’s robust economic fundamentals, and pulled funds out of stocks.
Economic data from across the region also has shown that economies are growing at a more subdued pace. The latest such evidence came Friday in the shape of an index measuring manufacturing activity in China, which showed a reading of 49.9 for September — the third successive month that the reading was below 50, signaling contraction.
In a report on Sept. 21, Standard Poor’s noted that the weaker global backdrop, combined with generally high inflation, could slow the pace of upgrades for some Asia-Pacific sovereigns, and could bring negative rating actions for those countries whose balance sheets are weak.
Asia-Pacific sovereign ratings have bucked the global trend so far in 2011 with two upgrades (Indonesia and Fiji) to one downgrade (Japan). But several countries in the region now have higher debt burdens and weaker budget positions than they had in 2008, S. P. said. It singled out the Cook Islands, Japan, Malaysia, New Zealand, and Vietnam, as countries whose net general government debt levels have risen “significantly” in the past few years.
In Japan and New Zealand, reconstruction efforts following devastating earthquakes earlier this year have added to government spending needs.
That was a factor in S. P.’s decision Friday to downgrade New Zealand’s long-term local-currency rating to AA+ from AAA, and its foreign-currency rating to AA from AA+. The day before, Fitch cut the country’s credit rating to AA from AA+.
Analysts broadly agree, however, that most emerging economies in Asia are relatively well positioned to weather the turmoil in the United States and Europe. Banks across the region have little direct exposure to the debt of Greece and other beleaguered European economies, while firm domestic demand is likely to help to insulate the region’s economies from any downturn in demand for Asian-made goods from overseas.
Exports to the West are less important now than they were in the run-up to the collapse of Lehman Brothers, said Frederic Neumann, a regional economist for HSBC in Hong Kong, in a research note on Friday. “Overall economic growth should hold up better even if shipments to the US and the EU decline more sharply.”
Article source: http://www.nytimes.com/2011/10/01/business/global/New-Zealand-Double-Ratings-Downgrade.html?partner=rss&emc=rss
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