Exporters need to focus on Asia, economists say
Credit downgrades weaken Europe's ability to fight off worsening debt crisis.
Monday, January 16 2012 || News || BY Roland van den Bergh, Businessday.co.nz
Credit rating agency Standard & Poor's cut the sovereign ratings of nine European nations on the weekend. France lost its prized AAA rating, dropping one notch to AA-plus.
The move dealt a further blow to Europe's ability to fight off a worsening debt crisis, but Germany retained its AAA status.
Bank of New Zealand chief economist Tony Alexander doubted events in Europe would have a significant impact on New Zealand financial markets today.
Sharemarkets overseas were down about half a per cent in response.
"I don't think here in New Zealand we are likely to see any particularly violent reaction. It's really a continuation of the same story," Alexander said.
"For New Zealand exporters it just continues the theme that the European market is going to be relatively weak."
There was also the risk that the New Zealand dollar would rise further against the euro and the British pound, hurting exports.
"Those who can should be giving more thought to where the longer term growth is going to come from for New Zealand exports. And that is across to Asia and China in particular," Alexander said.
ANZ chief economist Cameron Bagrie said the downgrades should serve as a reminder to markets, "which had a spring in their step" last week, that the challenges in Europe had not gone away.
The euro would remain under pressure.
"That is going to make life challenging for exporters, but on top of that I think a European recession is a done deal," Bagrie said.
The downgrades could also make investors more nervous, potentially increasing the cost of borrowing for New Zealanders as they sought higher interest rates on their money, he said.
Standard & Poor's defended the downgrades amid a wave of criticism and insisted that the region's leaders aren't doing enough to solve their debt crises.In Europe, there was concern over the power of ratings agencies.
In Germany, a senior member of Angela Merkel's conservative party, Michael Meister, suggested action to reduce the significance of ratings. Merkel signalled her support.
