Mon, 03 Oct 2011 12:07p.m.
By Michael Wilson
They dared to downgrade the US of A, now they are having a go at little old New Zealand. Fitch and Standard and Poors consider we are now just AA rather than AA plus. Who do those ratings agencies think they are? Weren’t they the buffoons who gave all that sub prime junk AAA ratings and so helped create the Global Financial Crisis?
And maybe that’s what is behind some of these downgrades. Certainly we and the US do have big debt problems. Downgrades are not completely unexpected. But because the ratings agencies botched things up so badly pre 2008, perhaps they are being a little more vigilant and pro-active now to avoid the future criticism that they again reacted too slowly to events.
Or, when you consider the sporting traumas of the weekend, did they know in advance that we as a nation were about to receive some confidence busting news - Dan Carter out of the World Cup and the Warriors losing to Manly. These two events have probably been more detrimental to confidence than the credit downgrade!
And do they have an inkling that it could get even worse? The All Blacks don’t make it to the ……
I can’t even complete the sentence as it is too painful to contemplate such a horror.
But if New Zealand was to fail at this World Cup it would probably be more confidence sapping than a couple of downgrades. Now it’s true that not everyone in New Zealand will be devastated if the ABs dip out.(Some who are not remotely sports inclinced may even cheer) But the numbers that will be stuck in Miseryville for several weeks could be so big that economic activity really could receive a dent or two.
And what is the likely impact of the Fitch and S and P downgrade? Not a lot really. Money market interest rates have edged up about nought point one of a per cent but that is unlikely to translate into a rate rise on a mortgage rate, at least not yet. Ironically the downgrade has helped our exporters as the kiwi dollar has been sold down to around US76 cents. This can actually help the country close the gap between what we earn as a nation and what we pay out. The balance of payments as it is called is in deficit and the figure has been starting to grow again, hence the concern of the ratings agencies that our debt levels are likely to rise over the next few years. But a lower dollar can help arrest the rise in our deficit.
The big worry for us though is if the outlook for the global economy continues to deteriorate. The ratings agencies have made the point that New Zealand is vulnerable if key parts of the world economy go back into recession. Europe and the US are looking dodgey and if they falter that could have an impact on the economies we rely on, China and Australia. Demand for our export commodities could fall and then our balance of payments situation could get much worse. That is the big danger and it is that possibility which has prompted the ratings agencies to react now and downgrade our delicate little economy.
To prevent further downgrades we have to hope Europe and the US can get their houses into order fairly smartly. We need China and Co to keep paying good prices for our commodities and so keep us in the lifestyle we are accustomed to. And last but not least we need the ABs to vanquish all who come before them so as a nation we feel confident enough to spend and invest our way out of trouble. Not a lot to hope for is it!
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