Credit agency reduces NZ rating

New Zealand, along with Australia, the United States, the United Kingdom and China have had their country risk ratings downgraded as global financial markets and economies deteriorate.

However, Japan and India have kept their respective ratings in credit reporting agency Dun & Bradstreet's (D&B) latest Economic & Risk Outlook Report which assesses 131 countries.

New Zealand's GDP growth forecast has also been revised down from 0.7 percent to 0.0 percent.

T he report said the 2008 world GDP forecast has been downgraded to 2.6 percent on the back of reduced global economic activity in the second quarter of 2008.

The weakening in economic activity was largely the result of a slowdown in the services sector.

The deterioration in conditions was exerting pressure on businesses, but D&B expected domestic activity to pick up in late 2008.

It also expected that the recent interest rate cut will help to ease pressure on consumer demand.

Meanwhile, wage and food price inflation continue to trend upwards.

Second-round inflationary effects will cause inflation to remain high in the fourth quarter this year, before easing in the first quarter of 2009.

D&B New Zealand's general manager John Scott said financial turmoil was driving deteriorating conditions across the globe.

"The sub-prime lending crisis is having significant detrimental impacts on developed and emerging economies throughout the world," he said.

"New Zealand has not escaped global financial market instability and faces the risk of recent upsets in the global capital market affecting external balances. This risk, combined with a weakening economic outlook, has forced a rating downgrade."

Australia also suffered a rating downgrade. A negative shock to consumer and investor sentiment, a fall in GDP growth and economic stagnation are the threats that have hit the Australian economy to date.

The United States and United Kingdom have suffered multiple ratings downgrades this year (two and three respectively) as these countries remained the most exposed to housing market woes and risks of a prolonged economic downturn.

China's GDP growth forecast has been downgraded from 9.8 percent to 9 percent amid growth and employment concerns.

While ratings for some of the world's most important economies -- Japan and India -- remain unchanged, they were not immune to economic challenges and there were signs that difficulties could lie ahead.

The contraction experienced in Japan in the second quarter was the largest in seven years and it was accompanied by nominal data showing a 3.3 percent quarter for quarter drop in GDP, the worst drop since 2003.

The D&B report also said that cross-border funding for banks and businesses had been substantially affected since the onset of the credit crunch in mid-2007.

International lending had declined, particularly in vulnerable developed economies, and this pattern was set to persist.

With credit markets remaining under pressure and financial institutions anticipating rising default risks and higher related financial sector losses, D&B expected the slowdown in international bank funding to continue affecting macroeconomic conditions.

NZPA WGT dw nb

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